Suppose Jordan and Lee Are Trying to Decide What to Do

question 69

Multiple Choice

Suppose Jordan and Lee are trying to decide what to do on a Friday. Jordan would prefer to see a comedy while Lee would prefer to see a documentary. One documentary and one comedy are showing at the local cinema. The payoffs they receive from seeing the films either together or separately are shown in the payoff matrix below. Both Jordan and Lee know the information contained in the payoff matrix. They purchase their tickets simultaneously, ignorant of the other's choice.   
Which of the following statements is true?

• A)The lower-left cell is the only Nash equilibrium.
• B)Both the lower-left and upper right cells are Nash equilibria.
• C)Both the upper-left and lower-right cells are Nash equilibria.
• D)The upper-right cell is the only Nash equilibrium.

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Definitions:

Average Variable Costs

The total variable costs divided by the quantity of output produced, reflecting the average cost of producing each unit.

Average Fixed Costs

Costs in production that are stable and do not vary with the amount of output, divided by the quantity of goods produced.

Output

The total amount of goods or services produced by a person, machine, factory, country, etc., within a certain period.

Total Cost Schedule

A detailed list that shows the total cost incurred at various levels of output or production.