Table 14-2 Table 14-2 Shows the Payoff Matrix for Walmart and Target

question 15

Multiple Choice

Table 14-2

Table 14-2 shows the payoff matrix for Walmart and Target from every combination of pricing strategies for the popular PlayStation 4. At the start of the game each firm charges a low price and each earns a profit of $7,000.
-Refer to Table 14-2.Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium?

• A)No, it is not a Nash equilibrium because each firm can do better by charging the high price. The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000.
• B)No, the current situation is not a Nash equilibrium; it is a dominant strategy equilibrium. There is no Nash equilibrium in this game.
• C)No, the current situation is not a Nash equilibrium. The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price.
• D)Yes, the current situation is a Nash equilibrium.

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Definitions:

Sensitization

The process of becoming more receptive or sensitive to a stimulus after repeated exposure to it.

Distal Stimuli

Objects and events in the external world that provide sensory input, as opposed to the sensory signals (proximal stimuli) actually perceived by the senses.

Psychophysics

The branch of psychology that deals with the relationships between physical stimuli and sensory perceptions and responses.

Discriminated Stimuli

Stimuli in operant conditioning that signal when a particular response will lead to a certain outcome.