Exhibit 9-5 Two-Firm Payoff Matrix

-Assume costs are identical for the two firms in Exhibit 9-5.If both firms were allowed to form a cartel and agree on their prices,equilibrium would be established by:

Question

Exhibit 9-5 Two-Firm Payoff Matrix
 
-Assume costs are identical for the two firms in Exhibit 9-5.If both firms were allowed to form a cartel and agree on their prices,equilibrium would be established by:

Quizplus · Accepted Answer

If the two firms were to form a cartel, they would maximize their joint profits by colluding and charging the high price. This is because if they both charge the high price, they would each earn $2 million in profits, which is higher than if either firm charges the low price ($1 million) and the other charges the high price ($0). Therefore, the equilibrium would be established by Widget Co. charging the high price and Ajax Co. charging the high price.