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

Question 55

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.This game __________ a prisoner's dilemma because __________.


A) is not;cheating has the highest payoff for both firms
B) is;if both firms played their dominated strategy,profits would be higher than if they play their dominant strategies
C) is;if both firms played their dominant strategy,profits would be higher than if they play their dominated strategies
D) is not;neither firm has a dominant strategy

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