Question

e payoff matrix below shows the payoffs (in millions of dollars) for two firms, A and B, for two different strategies, investing in new capital or not investing in new capital. Firm B Invest Not Invest Firm A Invest 20 for A 70 for A 20 for B 5 for B Not Invest 5 for A 50 for A 70 for B 50 for B Firm A’s dominant strategy is to ______, and Firm B’s dominant strategy is to ______.

Answer 1

Answer:

Invest

invest

Explanation:

Game theory looks at the interactions between participants in a competitive game and calculates the best choice for the player.

Dominant strategy is the best option for a player regardless of what the other player is playing

firm a can either earn20 or 70 if it advertises or 5 or 50 if it does not advertise. this is the same for firm B.

Thus the option that would yield the highest payoff is for both firms to advertise.

this is an example of prisoners dilemma