Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Firm B's response to advertising
B
Firm A's profit maximization
C
Market share increase
D
Firm A's decision-making process
Understanding the Answer
Let's break down why this is correct
Answer
In game theory, a dominant strategy is a choice that is the best for a player, no matter what the other players do. A Nash Equilibrium occurs when players choose their strategies in a way that no one can benefit by changing their own choice while the others keep theirs the same. So, if we think about Firm A's advertising strategy, we can compare it to a situation where Firm A chooses the best advertising plan based on what other firms are doing. For example, if Firm A finds that increasing its advertising always leads to higher sales, regardless of how much competitors advertise, that would be a dominant strategy for them. Therefore, Firm A's advertising strategy can be related to its best choice that leads to a stable outcome, similar to how a Nash Equilibrium works in a game.
Detailed Explanation
In game theory, a dominant strategy leads to a Nash Equilibrium, where players make the best choice. Other options are incorrect because Some might think profit maximization is the main goal; It's easy to assume advertising always leads to more market share.
Key Concepts
Game Theory Strategies
Dominant Strategy and Nash Equilibrium
Oligopolistic Competition
Topic
Game Theory Strategies
Difficulty
hard level question
Cognitive Level
understand
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