Use the following to answer questions # 39 & 40: ABC Company High Price Low Pric

Question

Use the following to answer questions # 39 & 40: ABC Company High Price Low Price 8 ABC $100 million ABC $130 million profit XYz $100 million XYZ $60 million profit profit profit 8 ABC $60 millionABC $80 million profit XYZ $130 million XYZ$80 million 9 profit profit 39. Refer to the above diagram. If ABC and XYZ engage in collusion, the outcome will be at cell: A] top left [B] top right [C] bottom left [D] bottom right. 40. Refer to the above diagram. Why would ABC want to cheat on this arrangement? A] ABC wouldn't have any incentive to cheat. [B] ABC will want to reduce its prices to increase its profits. IC] ABC will want to increase its prices to increase its profits. [D] ABC will want to reduce prices because it believes that XYZ won't respond.

Explanation / Answer

1- in case of collusion both the companies will produce whta is mutually the best for them and the mutual best is when both earns 100 profits, thus answer is top left.

2- now the ABC company will want to cheat because it knows as it will drop prices it can increase its profits by 130-100 = 30 million, thus answer is B

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.