Assume that the only two firms in the industry, Sundance Inc. and Moondance Ltd., have entered a collusive agreement to reduce their advertising budgets to a minimum. The resuit is that they expect to make profits of S115 million each. However, if either of them cheats. the cheater will increase its profits by $35 million at a cost of $35 million to the other firm. If they both cheat, they will each reduce their profits by $20 million. Moondance Stick to agreement Cheat on agreement Cell A Cell B Moondance: Moondance: Stick to agreement Sundance: Sundance: Sundance Cell c Cell D Cheat on Moondance: Moondance: agreement Sundance: Sundance: a. Complete the matrix by using the table above which shows the options facing the two firms.

Assume that the only two firms in the industry, Sundance Inc. and Moondance Ltd., have entered a collusive agreement to reduce their advertising budgets to a minimum. The resuit is that they expect to make profits of S115 million each. However, if either of them cheats. the cheater will increase its profits by $35 million at a cost of $35 million to the other firm. If they both cheat, they will each reduce their profits by $20 million. Moondance Stick to agreement Cheat on agreement Cell A Cell B Moondance: Moondance: Stick to agreement Sundance: Sundance: Sundance Cell c Cell D Cheat on Moondance: Moondance: agreement Sundance: Sundance: a. Complete the matrix by using the table above which shows the options facing the two firms.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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