Exhibit 9-5 Two-Firm Payoff Matrix Assume costs are identical for the two firms in Exhibit 9-5. If both firms were allowed to form a cartel and agree on their prices, equilibrium would be established by:

Question

Exhibit 9-5  Two-Firm Payoff Matrix  Assume costs are identical for the two firms in Exhibit 9-5. 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 form a cartel, they would aim to maximize their joint profits. The best strategy for the cartel would be to charge the monopoly price, which is the highest price that they can charge while still maintaining demand. In this case, the monopoly price is $6. Therefore, both firms would charge a price of $6, resulting in joint profits of $24. This is the equilibrium outcome for the cartel. Therefore, the best choice is option D.

Exhibit 9-5 Two-Firm Payoff Matrix Assume Costs Are Identical for the Two