Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
True
B
False
C
It depends on the market conditions
D
Firm B will always lower its price
Understanding the Answer
Let's break down why this is correct
Answer
In game theory, a dominant strategy is a choice that is best for a player, no matter what the other players decide to do. If Firm A always chooses to set a high price because it maximizes its profits, this means it's the best option for them regardless of Firm B's actions. Firm B, seeing that Firm A has a high price, may also choose to set a high price to avoid losing customers or profits, even if Firm B might have a different dominant strategy. For example, if both firms are selling similar products, Firm B might think that matching Firm A’s high price will help them stay competitive in the market. This situation shows how one firm’s decision can influence another's, leading to a situation where both firms end up setting high prices.
Detailed Explanation
Firm B's choice depends on its own strategy. Other options are incorrect because This answer assumes Firm B must always match Firm A's price; This option suggests that market conditions decide Firm B's choice.
Key Concepts
Dominant Strategies
Game Theory
Oligopoly
Topic
Dominant Strategies in Game Theory
Difficulty
medium level question
Cognitive Level
understand
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