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The Market for Bagels Contains Two Firms: BagelWorld (BW)and Bagels'R'Us

Question 47

Multiple Choice

The market for bagels contains two firms: BagelWorld (BW) and Bagels'R'Us (BRU) .The owners of the two firms decide to fix the price of bagels.The table shows the total profits the firms will earn if they abide by the price setting agreement or if they cheat on the agreement.  Bagel World  Bagels’R’Us  Cheat  Abide  Cheat  BRU: $40; BW: $40 BRU: $80; BW: $0 Abide  BRU: $0; BW: $80 BRU: $45; BW: $45\begin{array}{c}\text { Bagel World }\\\text { Bagels'R'Us }\begin{array}{|l|l|l|}\hline & \text { Cheat } & \text { Abide } \\\hline \text { Cheat } & \text { BRU: } \$ 40 ; \text { BW: } \$ 40 & \text { BRU: } \$ 80 ; \text { BW: } \$ 0 \\\hline \text { Abide } & \text { BRU: } \$ 0 ; \text { BW: } \$ 80 & \text { BRU: } \$ 45 ; \text { BW: } \$ 45 \\\hline\end{array}\end{array}
Refer to the figure above.For Bagels 'R' Us,__________ is its __________.


A) abiding by the agreement;dominant strategy
B) cheating on the agreement;dominated strategy
C) cheating on the agreement;dominant strategy
D) abiding by the agreement;dominant strategy when Bagel World also abides

Correct Answer:

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