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

Question 49

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.Suppose a new element was introduced into the agreement: if one firm cheats today,the other firm will cheat tomorrow,but if one firm abides today,the other will abide tomorrow.This strategy pattern is known as:


A) the prisoner's dilemma.
B) cartel-like behavior.
C) tit-for-tat.
D) mutual cooperation.

Correct Answer:

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