Economics 2.2

Use the information in the following table, which summarizes the payoffs (i.e., profit) to two firms that must decide between an average-quality and a high quality product, to answer the questions that follow:

    Firm 2  
    Average Quality High Quality
Firm 1 Average Quality 600, 600 400, 1100
  High Quality 1100, 400 900, 900

What is the Nash equilibrium strategy in this game? Is this an example of a prisoner’s dilemma game? Why or why not?