Table 16-19 Brian and Matt Own the Only Two Bicycle Repair Shops

question 230

Multiple Choice

Table 16-19
Brian and Matt own the only two bicycle repair shops in town. Each must choose between a low price for repair work and a high price. The annual economic profit from each strategy is indicated in the table. The profits are shown as (Matt, Brian) in each cell.

-Refer to Table 16-19.Which of the following statements is correct if Brian and Matt will play this game only once?

• A)The Nash equilibrium is for players to choose the low price.
• B)A Nash equilibrium cannot be established unless Brian and Matt collude.
• C)A Nash equilibrium cannot be established without the players repeating the game.
• D)The Nash equilibrium price is the low price.

---

Definitions:

Marginal Utility

The additional satisfaction or usefulness obtained from acquiring or consuming one more unit of a good or service.

Risk Averse

A characteristic of individuals who prefer to avoid risk, choosing certainty over uncertainty even if it results in a potentially lower return.

Marginal Utility Function

A mathematical representation that describes how the utility or satisfaction derived from consuming an additional unit of a good changes as more of the good is consumed.

Utility Function

A utility function is a mathematical representation of a consumer's preference ranking for different bundles of goods, showing the level of satisfaction for each.