Burger King and Mac Donald's repeat their simultaneous pricing decisions every Monday and have been cooperating for many weeks. Now, however, MacDonald's is considering whether to cheat or to continue cooperating. Mac's manager believes that it can only get away with cheating for two weeks before Burger King's manager will decide to retaliate with a price cut of its own. The ensuing price war is expected to last for two weeks and then the two restaurants typically return to period of cooperation again. MacDonald's manager employs a discount rate of 0.25 percent per week for the purpose of computing present values.
-The weekly (undiscounted) gain to MacDonald's from cheating is $ ____________. The present value of the benefits to MacDonald's from cheating is $ ____________.

Question

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The Answer of Burger King and Mac Donald's repeat their simultaneous pricing decisions every Monday and have been cooperating for many weeks. Now, however, MacDonald's is considering whether to cheat or to continue cooperating. Mac's manager believes that it can only get away with cheating for two weeks before Burger King's manager will decide to retaliate with a price cut of its own. The ensuing price war is expected to last for two weeks and then the two restaurants typically return to period of cooperation again. MacDonald's manager employs a discount rate of 0.25 percent per week for the purpose of computing present values.
-The weekly (undiscounted) gain to MacDonald's from cheating is $ ____________. The present value of the benefits to MacDonald's from cheating is $ ____________.

Burger King and Mac Donald's Repeat Their Simultaneous Pricing Decisions