Table 15.2.10

-Refer to Table 15.2.10. Firm A and Firm B are the only producers of soap powder. They collude and agree to share the market equally. The payoff matrix shows the game they play. The equilibrium of the game is that Firm A ________ and Firm B ________.
A)complies; cheats
B)cheats; complies
C)complies; complies
D)cheats; cheats
E)makes an economic profit; incurs an economic loss

Question

Table 15.2.10
 
-Refer to Table 15.2.10. Firm A and Firm B are the only producers of soap powder. They collude and agree to share the market equally. The payoff matrix shows the game they play. The equilibrium of the game is that Firm A ________ and Firm B ________.
A)complies; cheats 
B)cheats; complies 
C)complies; complies 
D)cheats; cheats 
E)makes an economic profit; incurs an economic loss

Quizplus · Accepted Answer

In colluding and agreeing to share the market equally, Firm A and B have created a duopoly. The payoff matrix shows that the dominant strategy for both firms is to cheat and produce more, as this leads to a higher payoff for each firm. Therefore, the equilibrium of the game is that both Firm A and Firm B cheat.

Table 15.2.10 -Refer to Table 15.2.10. Firm a and Firm B Are