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Polar Treat Polar Treat
Uptown Downtown
Frosty Igloo Uptown 75, 95 65, 80
Frosty Igloo Downtown 85, 70 60, 55

The payoff matrix above shows the possible profits of Frosty Igloo and Polar Treats, sole competitors in the same local market for frozen desserts. Each producer must choose either an uptown or downtown location. The first entry in each cell shows Frosty Igloo’s expected profit, while the second entry shows Polar Treat’s expected profit.

Which of the following statements is correct concerning the Nash equilibrium?

A

Frosty Igloo will earn 85 in the Nash equilibrium.

B

A Nash equilibrium is not possible in this case.

C

Polar Treat will earn 95 in the Nash equilibrium.

D

Frosty Igloo will earn 80 in the Nash equilibrium.

E

Polar Treat will earn more than Frosty Igloo in the Nash equilibrium.

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