1. (Table: Two Rival Gas Stations) Look at the table Two Rival Gas Stations. Swi

Question

1. (Table: Two Rival Gas Stations) Look at the table Two Rival Gas Stations. Swifty Gas and Speedy Gas are the only two

gas stations in a small town. Each firm can set either a high price or a low price, and customers view these two firms as

nearly perfect substitutes. The table shows the payoff matrix of daily profits that each firm would receive from its

pricing decision, given the pricing decision of its rival. Profits in each cell of the payoff matrix are given as (Swifty,

Speedy). If each firm sets the price independently, the Nash equilibrium outcome will be:
  
a)    $50, $50.
  
b)    $100, $100.
  
c)    $150, $25.
  
d)    $25, $150.

2. A dominant strategy equilibrium exists in a game when::
  
a)    each player's choices are dependent on the actions of other players.
  
b)    no player has a choice.
  
c)    no player is able to dictate or predict the actions of any other player.
  
d)    every player has a clear best action that does not depend on the action of the other players.

Table: Two Rival Gas Stations Speedy Gas High Price Low Price Swifty Gas High Price Swifty Gas Low Price $100, S100 S150. S25 S25, S150 $50, $50

Explanation / Answer

1) Nash Equilibrium is (50,50) as speedy and swifty both the people opting low price is better than high price independent of what other firm chooses.

2) every player has a clear best action that does not depend on the action of the other players.

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