Consider a "punishment" variation of the two-firm oligopoly situation shown in the figure below. Suppose that if one firm sets a low price while the other sets a high price, then the firm setting the high price can fine the firm setting the low price. Suppose that whenever a fine is imposed, X dollars are taken from the low-price firm and given to the high-price firm. RareAir's price strategy High Low $12 $15 A B High $12 $6 $6 $8 Low $15 $8 Instructions: Enter your answer as a whole number. What is the smallest amount that the fine X can be such that both firms will want to always set the high price? $O million Uptown's price strategy

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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Consider a "punishment" variation of the two-firm oligopoly situation shown in the figure
below. Suppose that if one firm sets a low price while the other sets a high price, then the
firm setting the high price can fine the firm setting the low price. Suppose that whenever a
fine is imposed, X dollars are taken from the low-price firm and given to the high-price
firm.
RareAir's price strategy
High
Low
$12
$15
A
B
High
$12
$6
$6
$8
Low
$15
$8
Instructions: Enter your answer as a whole number.
What is the smallest amount that the fine X can be such that both firms will want to
always set the high price?
$O million
Uptown's price strategy
Transcribed Image Text:Consider a "punishment" variation of the two-firm oligopoly situation shown in the figure below. Suppose that if one firm sets a low price while the other sets a high price, then the firm setting the high price can fine the firm setting the low price. Suppose that whenever a fine is imposed, X dollars are taken from the low-price firm and given to the high-price firm. RareAir's price strategy High Low $12 $15 A B High $12 $6 $6 $8 Low $15 $8 Instructions: Enter your answer as a whole number. What is the smallest amount that the fine X can be such that both firms will want to always set the high price? $O million Uptown's price strategy
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