What characterizes a Nash equilibrium in a simultaneous game between two firms?
Answer and explanation
Correct answer: C. A state where neither firm has an incentive to unilaterally change its strategy
- Step 1: In a Nash equilibrium, each player's strategy is a best response to the other players' strategies. Step 2. No individual player can improve their payoff by deviating unilaterally. Answer: A state where neither firm has an incentive to unilaterally change its strategy. Why not the others: Nash equilibrium often does not maximize collective welfare (as in the Prisoner's Dilemma); zero profit is a long-run condition of perfect competition.
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