The payoff matrix below presents the profits for Firm A and for Firm B under the
ID: 1110532 • Letter: T
Question
The payoff matrix below presents the profits for Firm A and for Firm B under the various pricing strategies. Suppose both firms have agreed to maximize their combined profits by colluding on their pricing strategies. Use the information in this payoff matrix to answer the following two questions.
Print Calculator Question 18 of 20 uppose both firms have agreed to maximize their combined profit by colluding on their pricing strateg the information in this payoff matrix to answer the following two questions Map Firm A Strategy 1. Compare the profits of Firm A when both firms respect the collusive agreement to the profits of Firm A when Firm A secretly cheats on the agreement. How much additional profit would Firm A earn by secretly cheating on the agreement to collude? (Round your answer to the nearest whole number.) Firm B StrategyHigh Price Low Price Firm A Profit 89 High Price Firm B Profit89 Firm A Profit 115 Firm B Profit 55 Firm A Profit 81 Firm B Profit = 81 Firm A Profit 55 Price Firm B Profit 115 Number 2. Compare the profits of Firm A when both firms respect the collusive agreement to the profits of Firm A when both firms cheat on the agreement. By how much would the profit of Firm A fall if both firms cheat on the greement to collude? (Round your answer to the nearest whole number.) Number Previous Give Up & View Solution O Check Answer Next Exit HintExplanation / Answer
1). If both firms collude then both firms will charge the high price
Therefore, if both firm respect the colluding agreement then profit of firm A = 89
If firm A cheats on the agreement then firm A will charge low price and firm B will charge high price
Therefore, if firm A cheats then profit of firm A = 115
Additional profit firm A will get by cheating = 115-89 = 26
2). If both firms collude then both firms will charge the high price
Therefore, if both firm respect the colluding agreement then profit of firm A = 89
If both firms cheat on the agreement then both firm A charge low price
Therefore, if both firms cheat then profit of firm A = 81
Reduction in profit of firm A when both firms cheat = 89-81 = 8
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.