Exhibit 10-5 Two-Firm Payoff Matrix
-Assume costs are identical for the two firms in Exhibit 10-5. If both firms were allowed to form a cartel and agree on their prices, equilibrium would be established by:

Question

Exhibit 10-5 Two-Firm Payoff Matrix 
-Assume costs are identical for the two firms in Exhibit 10-5. If both firms were allowed to form a cartel and agree on their prices, equilibrium would be established by:

Quizplus · Accepted Answer

If both firms were allowed to form a cartel and agree on their prices, equilibrium would be established by Beta Co. charging $1,000 and Alpha Co. charging $1,000. This is because the cartel would act as a single monopolist, and would set the price at the point where marginal revenue equals marginal cost.