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History Bookmarks People Window Help Georgia Gwinnett College-EC × C G the graph below represents ar x www.saplinglearning.com/ibiscms/mod/ibis/view.php?id-3801 767 marginal cost pri apling Learning acmilan learning Jump to... 11/5/2017 11:55 PM 845/1001 1/4/2017 02:01 PM Gradebook Question 10 of 40 Sapling Learning Maps e payoff matrix below presents the profits for Firm A and for Firm B under the various pricing stratogiles both firms have to maximize their cembined profits by colluding on their pricing strategies. Use the information in this matrix to answer the foiowing two questions Firm A Strategy 1. Compare the profits of Firm A when both firms respect the collusive profits of Firm A when Firm A secretly cheats on the agreement. How much addisional profit would Firm A earn by nt to the Firm B Strategy High Price Low Price Profit . 63 Firm, A Profit 101 collude? ( whole number.) on the agreement to your answer to the noarest High Price Firm 8 Profit 83 Firm B Profit 4s Firm A Profit 45 Low Price Firm B Profit 101 Frm A Profit Firm B Profit 71 71 2. Compare the profts of Firm A when both frms respect the collusive profits of Firm A when both to the cheat on 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.) O We Tech OPrevoa@Check AnswerNee!Ex 5

Explanation / Answer

Collusive arrangement would mean that the total profits are maximized i.e. Both firms adopt high price strategy

Profits = (83,83)

If Firm A cheats and charges a lower price, it would earn a profit of 101

Additional profit earned by cheating = 101 - 83 = 18

If both firms cheat, both would earn a lower profit of (71,71)

Fall of profit earned = 83 - 71 = 12

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