A small town has only one pizzeria the Pizza FactoryA small

A small town has only one pizzeria, the Pizza Factory.A small competior, Perfect Pies, is thinking about entering the market. The profits of these tw firms depend on whether Perfect Pies enters the market and whether the Pizza Factory-as a price leader-decides to set a high price or a low price Use the payoff matrix below to answer the questions that follow Perfect Pies Enter Stay out Perfect Pies makes $10,000 Perfect Pies makes $0 High price The Pizza Factory makes $20,000 The Pizza Factory makes $50,000 The Pizza Factory Perfect Pies makes $1,000 Perfect Pies makes $0 9 OF 18 QUESTIONS COMPLETED SUBMIT ANSW Type here to search

Solution

a) The dominant strategy of the Pizza Factory is to keep the price high (doing so, they will make more profit in both the case.)

b) The dominant strategy for the Perfect Pies is to \"Enter\". (doing so, they will make more profit than staying out. )

c) The Nash equilibrium is a situation where a single player can\'t change his strategy unilaterally or they will face loss. Here, the Nash equilibrium is perfect pies enter and pizza factory keeps the price high. The answer is \"A\".