6. 6.Given the pay-off matrix that shows the annual profits for alternative pricing decisions faced by two firms in aduopoly (assume they have similar production costs:Firm 2Firm 1Charge low priceCharge high priceCharge low price1: P15 M, 2: P15 M1: P10 M, 2: P30 MCharge high price1: P30 M, 2: P10 M1:P25 M, 2: P25 Ma.What is the dominant (best) pricing decision of Firm 1 and why?What is the dominant (best) pricing decision of Firm 2 and why?b.C.If the two firms decide to cooperate and agree on pricing, which pricing decision will they bothfollow? How can each firm make sure that the other firm will follow their pricing agreement andwill not cheat?d. If all firms in an oligopolistic market have similar pricing decisions (all charging high prices or allcharging low prices), is this enough evidence to say there is collusion among them? Explain.

* SOLUTION :- Given that , As per guidelines I answered first 3 subparts please repost other…

Answered: 6. Given the pay-off matrix that shows…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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6.
Given the pay-off matrix that shows the annual profits for alternative pricing decisions faced by two firms in a
duopoly (assume they have similar production costs:
Firm 2
Firm 1
Charge low price
Charge high price
Charge low price
1: P15 M, 2: P15 M
1: P10 M, 2: P30 M
Charge high price
1: P30 M, 2: P10 M
1:P25 M, 2: P25 M
a.
What is the dominant (best) pricing decision of Firm 1 and why?
What is the dominant (best) pricing decision of Firm 2 and why?
b.
C.
If the two firms decide to cooperate and agree on pricing, which pricing decision will they both
follow? How can each firm make sure that the other firm will follow their pricing agreement and
will not cheat?
d. If all firms in an oligopolistic market have similar pricing decisions (all charging high prices or all
charging low prices), is this enough evidence to say there is collusion among them? Explain.

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d. If all firms in an oligopolistic market have similar pricing decisions (all charging high prices or all charging low prices), is this enough evidence to say there is collusion among them? Explain.

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