Table 17-7 Two Companies, Wonka and Gekko, Each Decide Whether to Produce

Table 17-7
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.

-Refer to Table 17-7. Which of the following statements is correct?

A) Wonka can potentially earn its highest possible profit if it produces a good quality product, and for that reason it is a dominant strategy for Wonka to produce a good quality product.
B) The highest possible combined profit for the two firms occurs when both produce a poor quality product, and for that reason producing a poor quality product is a dominant strategy for both firms.
C) Regardless of the strategy pursued by Wonka, Gekko's best strategy is to produce a good quality product, and for that reason producing a good quality product is a dominant strategy for Gekko.
D) Our knowledge of game theory suggests that the most likely outcome of the game, if it is played only once, is for one firm to produce a poor quality product and for the other firm to produce a good quality product.

Correct Answer:

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