Refer to the payoff matrix. Suppose that Speedy Bike and Power Bike are the only two bicycle manufacturing firms serving the market. Both can choose large or small advertising budgets. Is there a Nash equilibrium solution to this game?
Multiple Choice
There is no possible Nash equilibrium solution.
A Nash equilibrium can occur at either cell B or cell C.
Cell A represents a Nash equilibrium.
Cell D represents a Nash equilibrium.
Answer:
Cell A represents a Nash equilibrium
Explanation:
In Game theory, there is a concept of solution often referred to as Nash Equilibrium, proposed by John Forbes Nash, is a type of solution concept of a game which involves multiple players, starting from two or more, in which no player has anything to gain by changing only his or her own strategy unilaterally.
Thus, to have Nash Equilibrium the first payoff number, in the payoff pair of the cell, is the maximum of the column of the cell and the second number is the maximum of the row of the cell.
Hence, in this case, the first $20 is the maximum amount of the column of the cell, and at the same time,the second $20 is the maximum amount of the row of the cell.
