-Suppose That an Industry Consists of Two Firms: Magna Corporation

Multiple Choice

-Suppose that an industry consists of two firms: Magna Corporation and Summa Corporation. Each firm produces an identical product. Magna and Summa are considering whether to expand (None) their production capacity for the next operating period. If the decision is to expand, the two firms must decide whether the expansion should be Moderate or Extensive. The tradeoff confronting each firm is that expansion will result in greater output that will lower the selling price of the product in the market. The normal form of this game is summarized in Figure 11.5. If larger payoffs are preferred, the Nash equilibrium strategy profile for this game is:

A) {None, None}.
B) {Moderate, Moderate}.
C) {Extensive, Extensive}.
D) {Moderate, Extensive}.
E) {None, Moderate}.