please explain the answer: Based on the following payoff matrix for a duopoly in
ID: 1120979 • Letter: P
Question
please explain the answer:
Based on the following payoff matrix for a duopoly in which the numbers indicate the profit in dollars for a high-price or a low-price strategy.
If both firms collude, the most likely profit is
Question 17 options:
$45 for Firm A and $20 for Firm B
$30 for Firm A and $30 for Firm B
$20 for Firm A and $45 for Firm B
$39 for Firm A and $39 for Firm B
A)$45 for Firm A and $20 for Firm B
B)$30 for Firm A and $30 for Firm B
C)$20 for Firm A and $45 for Firm B
D)$39 for Firm A and $39 for Firm B
Explanation / Answer
Correct option is (D).
With collusion, both firms aim at maximization of their joint profit. From the payoff table, joint profit is maximized when both firms price High and each firm earn $39 as profit.
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