Table 16-2
In the following duopoly game, the two firms can either set the price of their product high or low.The game is represented in the table below. $\begin{array}{|c|c|c|c|}\hline&&\text { Firm B }\&&\text { High Price }&\text { Low Price }\
\hline \text { Firm A }&\text { High Price }&\text { Firm A gets \$1000 } & \text { Firm A get \$1250 } \
&& \text { Firm B gets \$1000 } & \text { Firm B gets \$1100 } \
\hline &\text { Low Price }&\text { Firm A gets \$800 } & \text { Firm A gets \$900 } \
&&\text { Firm B gets \$800 } & \text { Firm B gets \$900 } \
\hline
\end{array}$
-Refer to Table 16-2.If the two firms wanted to achieve the optimal level of profit they would:
A)both sell at a low price
B)both sell at a high price
C)collude to let firm A sell at a low price and firm B to sell at a high price
D)collude to let firm A sell at a high price and firm B to sell at a low price

Question

Quizplus · Accepted Answer

If they collude and Firm A sells at a high price while Firm B sells at a low price, then Firm A will have a higher profit of $70 (compared to $60 if they both set a low price) and Firm B will have a profit of $30 (compared to $20 if they both set a high price). This results in a total combined profit of $100, which is the optimal level of profit.

Table 16-2 in the Following Duopoly Game, the Two Firms

Table 16-2
in the Following Duopoly Game, the Two Firms