ECONOMICS
COMPETITION AND MARKET STRUCTURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A firm chooses its dominant strategy, if one exists.
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Every competing firm in an industry chooses a strategy that is optimal given the choices of every other firm.
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Market price results in neither a surplus nor a shortage.
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All firms in an industry are earning zero economic profits.
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Detailed explanation-1: -The correct answer was: b. Every competing firm in an industry chooses a strategy that is optimal given the choices of every other firm..
Detailed explanation-2: -Nash equilibrium in game theory is a situation in which a player will continue with their chosen strategy, having no incentive to deviate from it, after taking into consideration the opponent’s strategy.
Detailed explanation-3: -Nash Equilibrium represents an action profile for all players in a game and is used to predict the outcome of their decision-making interaction. It models a steady state (i.e., a combination of strategies of all players) in which no player can benefit by unilaterally changing its strategy.
Detailed explanation-4: -A Nash equilibrium in price competition occurs when each firm chooses its price, assuming its competitors’ prices will not change. In equilibrium, each firm is doing the best it can, conditional on its competitors’ prices.
Detailed explanation-5: -A Nash equilibrium is always a dominant strategy equilibrium. If a player’s optimal strategy depends on the behavior of rival players, then that player must have a dominant strategy. The prisoners’ dilemma provides an explanation for price wars among oligopolists.