Question

Please indicate the correct answer and why. Thank you

Bud and Wise are the only two producers of aniseed beer, a New Age product designed to displace root beer. They are rying to figure out how much of this new beer to produce The table shows the payoff matrix (in dollars) for the game that Bud and Wise must play. The Nash equilibrium for this game is that. Bud's strategies red squares) 30,000 gallons 35,000 gallons 130,000 195,000 O A. B. C. O D. O E. Bud produces 30,000 gallons and Wise produces 30,000 gallons Bud produces 35,000 gallons and Wise produces 30,000 gallons Bud produces 35,000 gallons and Wise produces 35,000 gallons Bud produces 30,000 gallons and Wise produces 35,000 gallons Bud and Wise produce a total of 70,000 gallons, but it is impossible to know how much of the total each firm produces O 30,000 gallons 130,000 -70,000 Wise's stratoglo8 (blue squares) -70,000 35,000 gallons 195,000

Answer 1

If Bud produces 30,000 gallons of beer then Wise gets a profit of $130,000 if he also produces 30,000 gallons of beer and will get a profit of $195,000 if he produces 35,000 gallons of beer.

The profit of Wise is greater when he produces 35,000 gallons of beer.

So, Wise will produce 35,000 gallons of beer if Bud produces 30,000 gallons of beer.

If Bud produces 35,000 gallons of beer then Wise gets a profit of -$70,000 if he also produces 30,000 gallons of beer and will get a profit of $0 if he produces 35,000 gallons of beer.

The profit of Wise is greater when he produces 35,000 gallons of beer.

So, Wise will produce 35,000 gallons of beer if Bud produces 35,000 gallons of beer.

It can be seen that Wise will always produce 35,000 gallons of beer whatever be the strategy of Bud.

Thus, Wise has dominant strategy of producing 35,000 gallons of beer.

If Wise produces 30,000 gallons of beer then Bud gets a profit of $130,000 if he also produces 30,000 gallons of beer and will get a profit of $195,000 if he produces 35,000 gallons of beer.

The profit of Bud is greater when he produces 35,000 gallons of beer.

So, Bud will produce 35,000 gallons of beer if Wise produces 30,000 gallons of beer.

If Wise produces 35,000 gallons of beer then Bud gets a profit of -$70,000 if he also produces 30,000 gallons of beer and will get a profit of $0 if he produces 35,000 gallons of beer.

The profit of Bud is greater when he produces 35,000 gallons of beer.

So, Bud will produce 35,000 gallons of beer if Wise produces 35,000 gallons of beer.

It can be seen that Bud will always produce 35,000 gallons of beer whatever be the strategy of Wise.

Thus, Bud has dominant strategy of producing 35,000 gallons of beer.

Both the players in the game has dominant strategy.

When both players in the game have dominant strategies then combination of dominant strategies is the Nash equilibrium.

So,

The Nash equilibrium of this game is Bud produces 35,000 gallons and Wise produces 35,000 gallons.

Hence, the correct answer is the option (C).