Scenario: Two Firms in a Market Sell Identical Goods and Charge

Multiple Choice

Scenario: Two firms in a market sell identical goods and charge a price of $5 per unit. However, the cost of a crucial input used in producing these goods has increased. As a result, both firms are considering increasing the price of the good to $6. If the firms do not raise their prices at the same time, the firm that raises the price stands to lose market share. The payoff matrix shows the respective payoffs on the basis of the prices charged by each firm. Here, payoffs denote the number of units sold by each firm. The first number listed in each cell is the payoff to the row player, and the second number listed is the payoff to the column player.

-Refer to the scenario above.Which of the following is true in this case?

A) Firm 1's dominant strategy is to charge $6.
B) Firm 1's dominant strategy is to charge $5.
C) Firm 2's dominant strategy is to charge $6.
D) This game does not have a dominant strategy equilibrium.