Question

Two companies, Wonka and Gekko, each decide whether to produce a good quality product or a poor quality product. In the figure, the dollar amounts are payoffs and they represent annual profits (in millions of dollars) for the two companies. Wonka Good Quality Poor Quality Wonka = 10 Wonka = 9 Good Quality Gekko = 10 Gekko = 12 Gekko Wonka = 12 Wonka = 11 Poor Quality Gekko - 9 Gekko = 11 Refer to Table 17-7. If this game is played only once, then the most likely outcome is that both firms produce a poor quality product. both firms produce a good quality product. Wonka produces a poor quality product and Gekko produces a good quality product. Wonka produces a good quality product and Gekko produces a poor quality product.

Answer 1

For Gekko,

If Wonks choose Good Quality, Gekko chooses Good Quality because it will give a higher payoff of 10

If Wonks choose bad quality, Gekko chooses good quality as it'll give a high pay off of 12

For Wonks,

If Gekko chooses poor quality, Wonks choose good quality as it'll give high pay off of 12

If Gekko chooses good quality, Wonks choose good quality as it'll give high payoff of 10

We can see both the players choose good quality in all the cases which is why it can be mentioned that

(b) both firms produce good quality product is the answer to this question

Because both produce good quality product,

(a,c,d) are wrong