Question

Suppose that Under Armor and Nike are the sole producers of a particularly comfortable athletic shoe. The two firms currently charge the same price for their products. If neither firm reduces the price of its particularly comfortable athletic shoe, each firm earns $40 million in profit. If both firms reduce their prices, then each firm will earn $9 million in profit. If one firm reduces its price and the other does not, then the firm that reduces price will earn a profit of $60 million while the other firm will earn a profit of $2 million.

 

Assuming that collusion is not a possibility, the Nash equilibrium occurs when

Choose one:

A. Nike will reduce its price and Under Armor will maintain its current price 

B. both firms will reduce their price.

C. Under Armor will reduce its price and Nike will maintain its current price

D. both firms will maintain their current price.

Answer 1

A Nash equilibrium is an action profile a∗ with the property that no player i can do better by choosing an action different from ai , given that every other player j adheres to aj .

here as per the given defination of nash eqb the answer shoud be

"both firms reduce their prices"