Homework Answers
(a) There are no dominant strategies
A dominant strategy is the strategy chosen by a firm irrespective of strategy chosen by the other firm.
Firm 1 will choose Small car when Firm 2 chooses Big, but will choose Big car when Firm 2 chooses Small. So Firm 1 has no dominant strategy.
Firm 2 will choose Small car when Firm 1 chooses Big, but will choose Big car when Firm 1 chooses Small. So Firm 2 has no dominant strategy.
(b) (Small car and Big car), (Big car and Small car).
When Firm 2 chooses Big, Firm 1's best strategy is to choose Small since payoff is higher (600 > 400).
When Firm 2 chooses Small, Firm 1's best strategy is to choose Big since payoff is higher (700 > 400).
When Firm 1 chooses Big, Firm 2's best strategy is to choose Small since payoff is higher (600 > 400).
When Firm 1 chooses Small, Firm 2's best strategy is to choose Big since payoff is higher (700 > 400).
Nash equilibria are: (Small car and Big car), (Big car and Small car). [see below]
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hard work (Work) or make the other person look bad through
unscrupulous means (Nasty). The payoff matrix describing this game
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