Consider the Following Payoff Matrix Facing Two Firms Selling the Same

question 72

Multiple Choice

Consider the following payoff matrix facing two firms selling the same product in the same market. They must choose whether to price the good at a high or low price. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { COMPANY } B$
$\begin{array}{|l|l|l|l|}\hline & & {\text { Low Price }} & {\text { High Price }} \\\hline \text { COMPANY A } & \text { Low Price } & \text { A: } 2, \text { B: }: 2 & \text { A: } 4, \text { B: } 1 \\\hline & \text { High Price } & \text { A: } 1, \text { B: } 3 & \text { A: } 6, \text { B: } 2 \\\hline\end{array}$ Given this information:

• A) A has a dominant strategy but B does not.
• B) B has a dominant strategy but A does not.
• C) both A and B have dominant strategies.
• D) neither A nor B has a dominant strategy.

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Definitions:

Average Rate of Return

An investment's return, expressed as a percentage, which is calculated by dividing the average annual profit by the initial investment cost.

Cash Payback Method

An analysis technique to determine the time needed to recoup the initial investment in a project, based on cash flows.

Advantage

A favorable or beneficial condition, circumstance, or position that contributes to success.

Proposal

A formal offer or plan put forward for consideration or discussion by others.