1/ Answer the next question(s) based on the following payoff matrix for a duopol
ID: 1251475 • Letter: 1
Question
1/ Answer the next question(s) based on the following payoff matrix for a duopoly in which the numbers indicate the profit in thousands of dollars for a high-price or a low-price strategy
a/ Refer to the above payoff matrix. If both firms collude to maximize joint profits, the total profits for the two firms will be:
b/ Refer to the above payoff matrix. Assume that firm Y adopts a low-price strategy while firm X maintains a high-price strategy. Compared to the results from a high-price strategy for both firms, firm Y will now:
c/ Refer to the above payoff matrix. If both firms operate independently and do not collude, the most likely profit is:
$1,250,000
$1,400,000
$1,200,000
$1,500,000
Explanation / Answer
I suspect you made a mistake copying the graph. The "low price" and "high price" on the top should be switched. Otherwise, none of the answer choices are correct. a/ Refer to the above payoff matrix. If both firms collude to maximize joint profits, the total profits for the two firms will be: 625+625 = 1250 $1,250,000 b/ Refer to the above payoff matrix. Assume that firm Y adopts a low-price strategy while firm X maintains a high-price strategy. Compared to the results from a high-price strategy for both firms, firm Y will now: 725 - 625 = 300 475 - 625 = 150 Gain $100,000 in profit and firm X will lose $150,000 in profit c/ Refer to the above payoff matrix. If both firms operate independently and do not collude, the most likely profit is: The Nash equilibrium is (low price, low price) So, both firm earns 400 $400,000 for firm X and $400,000 for firm Y
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