The following matrix represents the payoffs to two producers, each making a strategic choice either to keep the output at 5 units or at 10 units.

-Refer to Table .Assume that the law allows players (firms of equal sizes) in Table 7-1 to make enforceable agreements.Which of the following agreements are they likely to form?
A)Player A and Player B would produce 5 units each.
B)Player A and Player B would produce 10 units each.
C)Player A would produce 10 units and Player B would produce 5 units.
D)Player B would produce 10 units and Player A would produce 5 units.

Question

The following matrix represents the payoffs to two producers, each making a strategic choice either to keep the output at 5 units or at 10 units.

-Refer to Table .Assume that the law allows players (firms of equal sizes) in Table 7-1 to make enforceable agreements.Which of the following agreements are they likely to form?
A)Player A and Player B would produce 5 units each. 
B)Player A and Player B would produce 10 units each. 
C)Player A would produce 10 units and Player B would produce 5 units. 
D)Player B would produce 10 units and Player A would produce 5 units.

Quizplus · Accepted Answer

In a scenario where both players can form enforceable agreements, they are likely to agree to produce 5 units each, as this will result in the highest combined payoff of 24. If one player produces 10 units while the other produces 5 units, the player producing 10 units will receive a higher payoff of 11, but the other player will receive a lower payoff of 9. Therefore, neither player has an incentive to deviate from the agreement to produce 5 units each.

The Following Matrix Represents the Payoffs to Two Producers, Each