The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

-The firms in an oligopoly market structure agree to collude because:
A)it helps them to earn more profits.
B)each firm wants to know the strategy of its rivals.
C)each firm wants to charge a lower price for its product than its rivals.
D)the firms want to maintain a healthy relationship with each other.
E)it helps them to enjoy economies of scale.

Question

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2
 
-The firms in an oligopoly market structure agree to collude because:
A)it helps them to earn more profits. 
B)each firm wants to know the strategy of its rivals. 
C)each firm wants to charge a lower price for its product than its rivals. 
D)the firms want to maintain a healthy relationship with each other. 
E)it helps them to enjoy economies of scale.

Quizplus · Accepted Answer

By colluding, the firms can agree on pricing strategies that will maximize their joint profits, rather than engaging in a price war that would lead to lower profits for all of them. Therefore, colluding helps the firms to earn more profits.

The Table Below Shows the Payoff (Profit) Matrix of Firm