his Question: 4 pts 20 or 24 (18 complete) > The matrix to the right shows payof
ID: 1160351 • Letter: H
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his Question: 4 pts 20 or 24 (18 complete) > The matrix to the right shows payoffs (profits in millions) based on the strategies chosen by two firms If they collude and hold prices at $1.25, than each firm will eam profits of S20 million. If firm A cheats on the agreament, lowering its price, but firm B does not, then firm A will get 75 parcent of the business and eam profits of $32 million and firm B will lose $3 million. Similarty, if firm 8 cheats and fim A does not, then firm B will earn $32 million and firm A ill lose $8 million. If both irms cut prices, then they will end up with $8 millo each in profits Which strategy minimizes the maximum potential loss for fim A and for firm B? The maximin strategy for both firms is to If you were firm A, which strategy would you choose? Firm A should B's Strategy Chaat 520 532 gr$20 S-8 A's Strateg O A. stand by the agreement because this is their dominant strategy O B. cheat because this is their dominant strategy O C. cheat because this maximizes prohts of bath firns. O D. stand by the agrement because this is their maximin strategy OE. stand by the agreement because this is their Lit-for tat strategy 58 532 58 If finm A cheats, then firm B wil and if firm B cheats, then firm A will What is the most likely outcome of such a game? Explain? A. Firm A will cheal and firm B will stand by he agreement because these are their maximin strategies OB. Firm A will stand by the agreement and firm B will cheat because these are their dominant strategies. C. Firm A and firm B will both stand by their agreement because daing so maximizes combined profts OD. Firm A and firm B will both cheat because doing so is each firm's dominant strategy O E. Firm A and firm B will both stand by their agreement because doing so is each firn's dominant strategy lick to sclect your answerExplanation / Answer
1. Maximin strategy maximizes the minimum gain that can be achieved. Both firm A and B's dominant startegy - Cheat.
The maximin strategy for both firms A and B is to: Cheat
Firm A should: (b) Cheat because this is their dominant strategy
If firm A cheats then firm B will also cheat, and if firm B cheats then firm A will cheat.
The most likely outcome of such a game is:
(d) Firm A and Firm B will both cheat because it is their dominant startegy.
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