Chapter 14 Homework 3 Refer to the profit payof matrix and answer the following

Question

Chapter 14 Homework 3 Refer to the profit payof matrix and answer the following questions. All profit figures are in thousands. points 0 59 Print Refere a. Using the payoff matrix, X and Y are interdependent, because their profits depend on an agreed-upon price. interdependent, because their profits depend not just on their own price but also on the other firm's price. ndependent, because their profits depend on their own price. independent, because their profts depend on an agreed-upon price. b. Using the payoff matrix, and assuming no collusion between and Y, what is the likely pricing outcome? Both firms will set price at $40 Firm X will charge $40, and firm Y will charge $35. Firm)k will charge S35, and firm Y will charge $40. Both firms will set price at $35. c. Refer to the matrix above. Price collusion is mutually profitable because each firm would achieve higher profits increased sales. higher productivity. lower costs d. There might be a temptation to cheat on the collusive agreement because each firm could achieve higher profits increased sales. higher productivity lower costs.

Explanation / Answer

A) ans is B because profit of firm depends on iths price itself as well as on other firm prices.

B)D. Both firm will charge 35 because (35,35) is a Nash equilibrium

C)A. Price collusion is better because each firm will get higher profit.

D)A. Higher profit can be achieved by deviation.

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