e payoff matrix below presents the profits for Firm A and for Firm B under the v
ID: 1117540 • Letter: E
Question
e payoff matrix below presents the profits for Firm A and for Firm B under the various pricing strategies uppose both firms have agreed to maximize their combined profits by colluding on their pricing strategies. Use the information in this payoff matrix to answer the following two questions Firm A Strategy 1. Compare the profits of Firm A when both firms respect the collusive agreement to the profits of Firm A when Firm A secretlyy cheats on the agreement. How much additional proft would Firm A earn by secretly cheating on the agreement to collude? (Round your answer to the nearest whole number.) Firm B StrategyHigh Price Low Price Firm A Profit = 113 Firm A Profit = 87 Firm B Profit 87 Firm A Profit = 53 Firm B Profit = 113 -High Prio- |Firm B Profit = 53 Firm A Profit = 79 Firm B Profit = 79 Low Price Number 18 2. Compare the profits of Firm A when both firms respect the collusive agreement to the profits of Firm A when both firms cheat on the agreement. By how much would the profit of Firm A fall if both firms cheat on the agreement to collude? (Round your answer to the nearest whole number.) Number 12Explanation / Answer
Cheating implies firm A charges lower price. This gives firm A profit = 113. Firm A by sticking to collusive output level gets profit = 87. Additional profit by deviating = (113-87)= $26 When both firms cheat firm A will get profit = 79. When the stick yo collusion Firm A gets Profit = 87. Firm A profit falls by (87-79) = $8
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.