Consider an oligopoly in which Firm A can choose between a low price and a high price, and Firm B has the same choices. If both firms choose a high price, they each make $20 million in profit. If firm B chooses high and firm A choose low, firm A earns $25 million and firm B earns $10 million. If firm A chooses high and firm B chooses low, firm A earns $14 million and firm B earns $23 million. If they both choose a low price, they each earn $12 million. a. If the firms choose their prices independently and simultaneously, what will they each choose to do? b. If the firms could collude and choose simultaneously as a pair, what prices will they choose? Is there another collusive option the firms might choose if this game was played repeatedly? Why or why not? C.
Consider an oligopoly in which Firm A can choose between a low price and a high price, and Firm B has the same choices. If both firms choose a high price, they each make $20 million in profit. If firm B chooses high and firm A choose low, firm A earns $25 million and firm B earns $10 million. If firm A chooses high and firm B chooses low, firm A earns $14 million and firm B earns $23 million. If they both choose a low price, they each earn $12 million. a. If the firms choose their prices independently and simultaneously, what will they each choose to do? b. If the firms could collude and choose simultaneously as a pair, what prices will they choose? Is there another collusive option the firms might choose if this game was played repeatedly? Why or why not? C.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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