Nahshid and Senim own competing businesses and have agreed to collude to keep prices high. They both plan a being in business indefinitely (so this is an infinitely repeated game.) IF they collude, Nahshid gets a payoff of $120 now and $120 in every year going forward. But if Nahshid "cheats" he gets a one-time payoff of $13 now. Senim responds with a trigger strategy which means that Nahshid only gets $118 for every year after this. What does the interest rate have to be in order for Nahshid to continue colluding and not cheat? Select one: O a. Interest rate must be greater than or equal to 0.1, or 10%, to sustain collusion. O b. Interest rate must be less than or equal to 0.1, or 10%, to sustain collusion. O c. Interest rate must be greater than or equal to 0.2, or 20%, to sustain collusion. O d. Interest rate must be less than or equal to 0.2, or
Nahshid and Senim own competing businesses and have agreed to collude to keep prices high. They both plan a being in business indefinitely (so this is an infinitely repeated game.) IF they collude, Nahshid gets a payoff of $120 now and $120 in every year going forward. But if Nahshid "cheats" he gets a one-time payoff of $13 now. Senim responds with a trigger strategy which means that Nahshid only gets $118 for every year after this. What does the interest rate have to be in order for Nahshid to continue colluding and not cheat? Select one: O a. Interest rate must be greater than or equal to 0.1, or 10%, to sustain collusion. O b. Interest rate must be less than or equal to 0.1, or 10%, to sustain collusion. O c. Interest rate must be greater than or equal to 0.2, or 20%, to sustain collusion. O d. Interest rate must be less than or equal to 0.2, or
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Nahshid and Senim own competing businesses and have
agreed to collude to keep prices high. They both plan on
being in business indefinitely (so this is an infinitely
repeated game.)
IF they collude, Nahshid gets a payoff of $120 now and
$120 in every year going forward.
But if Nahshid "cheats" he gets a one-time payoff of $130
now. Senim responds with a trigger strategy which
means that Nahshid only gets $118 for every year after
this.
What does the interest rate have to be in order for
Nahshid to continue colluding and not cheat?
Select one:
O a. Interest rate must be greater than or equal to 0.1,
or 10%, to sustain collusion.
O b. Interest rate must be less than or equal to 0.1, or
10%, to sustain collusion.
O c. Interest rate must be greater than or equal to 0.2,
or 20%, to sustain collusion.
O d. Interest rate must be less than or equal to 0.2, or
20%, to sustain collusion.
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