A ................ results when each player adopts the strategy that gives her the highest possible pay off if her rival sticks to the strategy she has chosen.
Nash equilibrium
Game theory studies strategic interaction, where each player's pay-off depends on her own choice and on the choices of rivals. John Nash (1950) defined the most widely used solution concept for non-cooperative games.
In a Nash equilibrium each player chooses the strategy that is a best response to the strategies actually chosen by the others. Given that her rival sticks to his chosen strategy, no player can raise her pay-off by switching unilaterally. This is exactly the description in the stem: every player adopts the strategy giving her the highest pay-off when the rival keeps his strategy unchanged.
Partial equilibrium analyses a single market holding other markets constant. General equilibrium studies the simultaneous equilibrium of all markets, as in the Walrasian system. Long-run equilibrium refers to the state where firms have adjusted all inputs and earn normal profit. None of these is defined in terms of mutual best responses between strategic players.
Nash equilibrium option is correct.
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