-Oscar and Felix are the only firms that clean offices in a large city. They agree to operate as a cartel. The payoff matrix shows the economic profit that each firm can make. If the game is played repeatedly and Felix and Oscar both use a tit-for-tat strategy, then
A) Felix will make $10 million of economic profit and Oscar will cheat.
B) Felix and Oscar will each make $1 million of economic profit.
C) Felix will make -$2 million economic of profit and Oscar will cheat.
D) Felix and Oscar will each make $10 million of economic profit.

Question

-Oscar and Felix are the only firms that clean offices in a large city. They agree to operate as a cartel. The payoff matrix shows the economic profit that each firm can make. If the game is played repeatedly and Felix and Oscar both use a tit-for-tat strategy, then
A) Felix will make $10 million of economic profit and Oscar will cheat. 
B) Felix and Oscar will each make $1 million of economic profit. 
C) Felix will make -$2 million economic of profit and Oscar will cheat. 
D) Felix and Oscar will each make $10 million of economic profit.

Quizplus · Accepted Answer

In a tit-for-tat strategy, both firms cooperate initially and then replicate the opponent's previous move. If both firms consistently cooperate, they will maintain the highest possible joint profit, which is $10 million each in this scenario.

-Oscar and Felix Are the Only Firms That Clean Offices