-The only two firms in a market are trying to decide what price to charge.The payoff matrix for this duopoly game is shown above.The payoffs are thousands of dollars of economic profit.Which of the following statements is correct?
A) If the firms play this game repeatedly, one would end up charging $20 and the other $10.
B) If the firms cooperate, both could make $55,000 in economic profit.
C) The Nash equilibrium in this game is for both firms to set P = $20 because that maximizes their combined profit.
D) Firm B's strategy is to always set P = $20 because that gives Firm B the highest possible profit.
E) If Firm B sets P = $20, then Firm A will maximize its profit by setting its P = $20.

Question

-The only two firms in a market are trying to decide what price to charge.The payoff matrix for this duopoly game is shown above.The payoffs are thousands of dollars of economic profit.Which of the following statements is correct?
A) If the firms play this game repeatedly, one would end up charging $20 and the other $10. 
B) If the firms cooperate, both could make $55,000 in economic profit. 
C) The Nash equilibrium in this game is for both firms to set P = $20 because that maximizes their combined profit. 
D) Firm B's strategy is to always set P = $20 because that gives Firm B the highest possible profit. 
E) If Firm B sets P = $20, then Firm A will maximize its profit by setting its P = $20.

Quizplus · Accepted Answer

If the firms cooperate, they can both charge $20 and split the market, resulting in $55,000 in economic profit for each.

-The Only Two Firms in a Market Are Trying to Decide