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(Table) Assume That Firm a and Firm B Are Oligopolies

Question 115

Multiple Choice

(Table) Assume that firm A and firm B are oligopolies and both charge $20 for a product and face roughly the same costs. Firm A is considering a price decrease to $15. Profits for each firm are given in the payoff matrix (A's profits listed first, B's profits listed second) shown in the table. How will firm B react?
 Firm B’s Price $20$15 Firm A’s Price $20$100,000$60,000$100,000$120,000$15$120,000$80,000$60,000$80,000\begin{array}{c}\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad {\text { Firm B's Price }} \\\begin{array}{rrrr} & &\$ 20 & \$ 15 \\\text { Firm A's Price } & \$ 20 &\$ 100,000 & \$ 60,000 \\\\& &\$ 100,000 & \$ 120,000 \\& \$15 &\$ 120,000 & \$ 80,000 \\& &\$ 60,000 & \$ 80,000\end{array}\end{array}


A) Firm B will keep its price at $20 and earn $100,000.
B) Firm B will keep its price at $20 and earn $60,000.
C) Firm B will lower its price to $15 and earn $60,000.
D) Firm B will lower its price to $15 and earn $80,000.

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