· Econ201-Fall20 174 × e Chegg study! Guided s e0CFB PLAYOFF RA leRCourses-Black

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· Econ201-Fall20 174 × e Chegg study! Guided s e0CFB PLAYOFF RA leRCourses-Blackbo 0 YouTube (-0 Ball State University us blackboard bs.edubbcs ebdav pid-636946-t-content-rid-419879761/courses/201 7FAL ECON201S08 CLAS 14902 ME To see favorites here, select then and drag to the Favorites Bar folder. Or import from another browser. Import favorites Find on page Enter text to search Welcome, Tyler-Blackl | + v No results Options See scenario and fgure belon to answer rest of the questions Suppose two companies, ABC and QRS, are sellers in the same market. Each company decides whether to charge a high price or a low price. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. ABC's Decision High ABCs profit-$10 muillion ABC's pnofi-$14 million High price rofit $10 million QRSs profis $4 million QRS Decision BCs profit-$4 million ABCs profit $65 mallion Low price RSs profit-$14 malion e. ( polnt) If the two companies make their pricing decisions independently, then regardless of whether QRS will be charging a high or a low price, it is likely that ABC will be charging Domimant strategy of ABC] (please circle one) f. ( point) If the two companies make their pricing decisions independently, then regardless of whether ABC will be charging a high or a low price, it is likely that QRS will be charging Dominant strategy of QRS] (please circle one) low 1036 AM O Type here to search q1) ENG 12/5/2017 ^

Explanation / Answer

(e)

If QRS charges high price, ABC will charge low price as profit for ABC is higher in that case.

If QRS charges low price, ABC will charge also charge low price as profit for ABC is higher in that case.

So, regardless of whether QRS charges a high price or a low price, it is likely that ABC will be charging low price.

(f)

If ABC charges high price, QRS will charge low price as profit for QRS is higher in that case.

If ABC charges low price, QRS will charge also charge low price as profit for QRS is higher in that case.

So, regardless of whether ABC charges a high price or a low price, it is likely that QRS will be charging low price.

(g)

Both firms have dominant strategy of low price.

So, if this game is played only once, both firms will charge low price.

Thus, the likely outcome of this game is Both firms charge a low price.

(h)

If both firms collude and reached an agreement then they will both charge high price as profit is greater for each of them when they both charge high price in simultaneous manner relative to when they charge low price in simultaneous manner.

However, after one month if it is discovered that ABC's profit is $4 million and QSR's profit is $14 million then this implies that ABC is still charging high price but QRS has cheated and is charging low price.

So, the most likely explanation for this outcome is that QRS cheated.

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