Use the following to answer question:
Figure: Pricing Strategy in Cable TV Market I
-(Figure: Pricing Strategy in Cable TV Market I)Use Figure: Pricing Strategy in Cable TV Market I.If the two firms in the cable TV market collude:
A)both firms advertise,and each earns $100,000.
B)neither firm advertises,and each earns $150,000.
C)CableNorth advertises and earns $130,000,while CableSouth does not advertise and earns $70,000.
D)both firms advertise and each earns $130,000.

Question

Use the following to answer question:
Figure: Pricing Strategy in Cable TV Market I 
-(Figure: Pricing Strategy in Cable TV Market I)Use Figure: Pricing Strategy in Cable TV Market I.If the two firms in the cable TV market collude:
A)both firms advertise,and each earns $100,000. 
B)neither firm advertises,and each earns $150,000. 
C)CableNorth advertises and earns $130,000,while CableSouth does not advertise and earns $70,000. 
D)both firms advertise and each earns $130,000.

Quizplus · Accepted Answer

When firms collude, they agree to not compete aggressively, which in this context means they would not advertise. By not advertising, they avoid the costs associated with advertising and potentially avoid a price war, leading to higher profits for both. Hence, each earning $150,000 represents the scenario where they are colluding effectively.

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