In the Little Town of Gas Pump, South Dakota, There

question 15

Multiple Choice

In the little town of Gas Pump, South Dakota, there are two gas stations across the street from each other, the East station and the West station.A local ordinance requires that they are permitted to change the price of gasoline only once a week at precisely 8:00a.m.on Monday and in 5 cent increments.For some time, the price of gasoline has been stable at $1.50 per gallon, but midweek, the price each station pays for gasoline changed to $1.49.Given the payoff matrix below, which of the following strategies is a pure strategy Nash equilibrium?

• A)(hold, hold)and (raise, raise)
• B)(cut, cut)and (hold, hold)
• C)(cut, cut), (hold, hold), and (raise, raise)
• D)(raise, raise)
• E)No pure strategy Nash equilibrium exists.

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Definitions:

Costs

The value of resources spent in the process of producing or providing goods and services.

Cost Formula

A mathematical expression or equation used to calculate the total cost of production, taking into account fixed costs, variable costs, and output levels.

Activity Level

The degree to which resources are utilized in the production process, often measured in units produced, machine hours, or direct labor costs.

Total Cost

The sum of all expenses involved in producing a good or delivering a service, including fixed and variable costs.