Below is a profit pay-off matrix for two oligopoly firms: North and South.North's profits are shown in the upper portion of each box and South's are in the lower portion.

-Refer to the information above to answer this question.If both North and South are independently following a low output policy and North assumes that South will stay with its policy,what is North's best course of action?

Question

Below is a profit pay-off matrix for two oligopoly firms: North and South.North's profits are shown in the upper portion of each box and South's are in the lower portion.
 
-Refer to the information above to answer this question.If both North and South are independently following a low output policy and North assumes that South will stay with its policy,what is North's best course of action?

Quizplus · Accepted Answer

By adopting a high output policy independent of South, North can earn a profit of $50 million, which is higher than any other option. If North decides to remain with a low output policy, it will earn a profit of only $30 million. However, if North convinces South to adopt a high output policy, then both firms will earn $40 million each. If North decides to ignore South's actions and adopt a high output policy, North will earn $20 million while South earns $10 million, which is a worse outcome than both firms adopting a high output policy. Thus, North's best course of action is to adopt a high output policy independent of South's actions.

Below Is a Profit Pay-Off Matrix for Two Oligopoly Firms