The payoff matrix below represents hypothetical profits that could be earned by

Question

The payoff matrix below represents hypothetical profits that could be earned by two milk sellers who have formed a cartel. Each seller must decide if they want to cheat or not to cheat on the production quotas in the cartel agreement. Use the payoff matrix to answer the questions below. Does either member have an incentive to cheat? Heifer's Gold will cheat, but Milky Moo will not. No, neither has an incentive to cheat, Yes, both will cheat. Milky Moo's will cheat, but Heifer's Gold will not. How does cheating impact the cartel members? Cheating helps all the cartel members by increasing their profits. Cheating does not impact the other members. Cheating hurts the members who do not cheat by decreasing their profits.

Explanation / Answer

In first option- Both will cheat as they have advantage if they cheat and other dont. so both of tehm will think to cheat to get extra profit over other.

In 2nd option- Cheating hurts other members who dont cheat by decreasing their profit. Its clearly shown in matrix that if one is cheating and the other is not then the other having decreased profit.

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