Will want to deviate from the dominant strategy equilibrium Ull Question 17 refe

Question

Will want to deviate from the dominant strategy equilibrium Ull Question 17 refers to the chart below) person has a dominant strategy Firm Y High $60m $60m $10m $20m (Frim X) (Firm Y) Firm X) (Firm Y) High Firm X $20m $10m $20m $20m (Firm X) (Firm Y) (Firm X) (Firm Y) Low 17. If both firms are allowed to form a cartel (i.e., cooperate) and agree on prices, equilibrium will be established by: a. Firm X charging the low price and Firm Y charging the high price b. Frim X charging the high price and Frim Y charging the low price c. Both firms charging the low price d. Both firms charging the high price e. Either C or D a. Firm X charging the low price and Firm Y charging the high price b. Frim X charging the high price and Frim Y charging the low price 18. If both firms assume the other will charge a low price, equilibrium will be established by: Both firms charging the low price d. Both firms charging the high price e. Either C or D

Explanation / Answer

17. If both the firms will be allowed to cooperate, they'll end up charging higher price.

OPTION D

18. If firm X charges lower price, firm Y will have higher payoff with lower price.

If firm Y charges lower price, firm X would charge lower price.

OPTION C

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