Horizon Helicopter Rides High Price Low Price Top Flight Helicopter Rides High P
ID: 1256901 • Letter: H
Question
Horizon Helicopter Rides
High Price
Low Price
Top Flight Helicopter Rides
High Price
80, 80
50, 98
Low Price
98, 50
65, 65
Reference: Ref 12-4
Table 12.4Horizon Helicopter Rides
High Price
Low Price
Top Flight Helicopter Rides
High Price
80, 80
50, 98
Low Price
98, 50
65, 65
Reference: Ref 12-4
(Table 12.4) The table shows payoffs as profits in thousands of dollars. Which of the following statements is TRUE? Horizon's dominant strategy is High Price. There are two Nash equilibria: (80, 80) and (65, 65). The Nash equilibrium occurs when both companies choose the Low-Price strategy. This game has no Nash equilibrium.
Explanation / Answer
Nash equilibrium occurs when one firm decide their strategy based on what the other firm decides.
For Top Flight:
When Horizon sets Low Price, Top Flight decides Low price since is profit is higher (65 > 50).
When Horizon sets High Price, Top Flight decides Low price since is profit is higher (98 > 80).
For Horizon:
When Top Flight sets Low Price, Horizon decides Low price since is profit is higher (65 > 50).
When Top Flight sets High Price, Horizon decides Low price since is profit is higher (98 > 80).
So, Nash equilibrium occurs when both choose Low Price as strategy.
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