Refer to the payoff matrix at right for the profits (in $ millions) of two firms (A and B) and two pricing strategies (high and low). Which of the following is the outcome of the dominant strategy without cooperation? A. Firm A chooses the high price while firm B chooses the low price. B. Both firm A and firm B choose the low price. C. Both firm A and firm B choose the high price. D. Firm A chooses the low price while firm B chooses the high price.

B. Both firm A and firm B choose the low price.

Explanation:

Both firm A and Firm B will choose the low price and make profits of $3 if there is no cooperation.

This is because at any other price, the other firms could go with the low strategy and get more profit.

For instance, if Firm A is using a low price and Firm B is using a high price then Firm A makes profit of $10 whilst B makes $1.

Conversely, if Firm B charges a low price and A a high price, A will make paltry profits of $1 while B would make $10.

Their best option therefore is to both pick the low price and make $3.

If they were cooperating they could both charge a high price and make $5 each.

Your question was incomplete so I attached the payoff matrix.

d, conspicuous consumption is when you try to increase your wealth or social status (and in the case he's trying to create the perception of wealth considering he can't really afford it)