Two firms, A and B, must each choose either a low price or a high price for thei

Question

Two firms, A and B, must each choose either a low price or a high price for their product. The payoff matrix shows the profit each firm would make with the various price combinations. Profits are in millions of dollars and Firm A's profit is on the left and Firm B's profit is on the right side of each cell. Firm B Low price High price 5, 6 8,4 7, 7 Low price Firm A High price 3,8 If the firms cannot cooperate with each other and must choose simultaneously, what price will they choose? OA. O B. Both firms will choose the high price. Both firms will choose the low price. C. Firm A will choose the high price and Firm B will choose the low price D. Fim A will choose the low price and Firm B will choose the high price.

Explanation / Answer

If the firms cannot cooperate with each other and must choose simultaneously Low Price strategy.

It is because it is the only Nash Equilbrium in this given game.

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