Company A and B have to decide how many units to produce and sell (zero, one, tw

Question

Company A and B have to decide how many units to produce and sell (zero, one, two, or three units). The table below shows the different payoffs for each combination of actions. Recall that the first entry in each cell is the payoff of Company A, and the second entry is the payoff of Company B. Find the rationalizable strategies by applying the method of iterative elimination of strictly dominated strategies Company B Three units 0, 15 3,9 2,3 Zero units One unit Zero units One unit Two units Three units Two units 0,14 5,10 6,6 3,2 0,0 0,9 Company A 14,0 10,5 15, 0 9,3 a. For both companies. producing one unit or producing two units are both rationalizable strategies For both companies, producing zero units, producing one unit, or producing two units are all rationalizable strategies C. For both companies, producing one unit is the only rationalizable strategy. d. For both companies, producing two units is the only rationalizable strategy

Explanation / Answer

Option (a) is the right answer because (0,0) payoff can be neglected as it gives nothing to the companies.

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