Refer to Table 14-2. Is the current strategy in which each firm charges the low price and earns a profit of 7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium?
A) No, it is not a Nash equilibrium because each firm can do better by charging the high price. The Nash equilibrium occurs when each firm charges the high price and earns a profit of 10,000.
B) No, the current situation is not a Nash equilibrium. The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price.
C) Yes, the current situation is a Nash equilibrium.
D) No, the current situation is not a Nash equilibrium; it is a dominant strategy equilibrium. There is no Nash equilibrium in this game.
Question 2
If a firm's average total cost is less than price where MR = MC
A) the firm should shut down.
B) the firm should cut back on its output to lower its cost.
C) the firm should continue to produce the output it is producing.
D) the firm should raise its price.
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