Firm B Keep agreement Break agreement Keep agreement Firm A profit = $50 Firm B
ID: 1109267 • Letter: F
Question
Firm B
Keep agreement
Break agreement
Keep agreement
Firm A profit = $50
Firm B profit = $50
Firm A profit = $100
Firm B profit = $5
Break agreement
Firm A profit = $5
Firm B profit = $100
Firm A profit = $10
Firm B profit = $10
Given the matrix above, which of the following is correct?
Firm B
Keep agreement
Break agreement
Firm AKeep agreement
Firm A profit = $50
Firm B profit = $50
Firm A profit = $100
Firm B profit = $5
Break agreement
Firm A profit = $5
Firm B profit = $100
Firm A profit = $10
Firm B profit = $10
Explanation / Answer
When A chooses Keep, B will choose Keep
When A chooses Break, B will choose Keep
So, B’s dominant strategy is to Keep Agreement.
Similarly,
When B chooses Keep, A will choose Keep
When B chooses Break, A will choose Keep
So, A’s dominant strategy is to Keep Agreement
Thus, correct option is: (d) Firm A’s dominant strategy is to keep the agreement, and Firm B’s dominant strategy is to keep the agreement
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