Suppose There Are Only Two Firms in an Industry

question 59

Multiple Choice

Suppose there are only two firms in an industry.If they each set a high price,they each earn $5000.If they each set a low price,they each earn $2500.If one firm sets a low price while the other sets a high price,the low- price firm earns $7000 while the high- price firm earns $1000.Does a prisoners' dilemma exist?

• A)yes,the Nash equilibrium does not maximize the joint payoff
• B)yes,because there is always a prisoner's dilemma in game theory
• C)no,the Nash equilibrium does not maximize the individual payoff
• D)no,the Nash equilibrium does not maximize the joint payoff
• E)it cannot be determined from the information provided

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Definitions:

Probability

An indication of how probable an event is to happen, represented by a numerical value ranging from 0 to 1.

Red Die

A single six-sided gaming cube that is red, typically used in board games and probability exercises.

Green Die

A dye or pigment that produces a green color, potentially used in manufacturing or artistic applications.

Independent

Not influenced by or contingent on something else; in statistics, two events are independent if the occurrence of one does not affect the probability of the other.