In the scenario above, in Nash equilibrium
A) both firms cheat to produce more than the agreed amount.
B) both firms comply with the agreement.
C) one firm complies with the agreement while the other cheats to produce more than the agreed amount.
D) both firms cheat to produce less than the agreed amount.

Question

Quizplus · Accepted Answer

In a Nash equilibrium, each firm chooses its best response given the other firm's action. If both firms have an incentive to cheat to increase their output and profits, they will both end up cheating, leading to a situation where both produce more than the agreed amount.

In the Scenario Above, in Nash Equilibrium