The equilibrium strategy for each firm in a duopolist's dilemma is to ________. Firms ________ succeed in raising price and profits because each firm ________.
A)comply; do not; makes a smaller economic profit if it complies with the agreement, but complying with the agreement is in the social interest, and most firms support the social interest
B)comply; do; makes greater economic profit if it complies with the agreement, regardless of how the other firm acts
C)cheat; do not; makes greater economic profit if it cheats on the agreement, regardless of how the other firm acts
D)cheats; do; makes greater economic profit if it cheats on the agreement, regardless of how the other firm acts
E)cheat; do; refuses to sell at any price below the monopoly price

Question

Quizplus · Accepted Answer

In a duopolist's dilemma, the equilibrium strategy for each firm is to cheat, as each firm can make greater economic profit if it cheats on the agreement, regardless of how the other firm acts. This leads to a Nash equilibrium, where both firms choose to cheat and price and profits remain lower than they would be under a cooperative agreement.

The Equilibrium Strategy for Each Firm in a Duopolist's Dilemma