Question 16 Two firms are competing in an oligopoly and they can elect to either charge a high price or a low price. If they both charge a high price, firm A earns $100 and firm B earns $120. If they both charge a low price, firm A earns $70 and firm B earns $60. If firm A charges a low price and firm B charges a high price, firm A earns $200 and firm B earns $50. If firm B charges a low price and firm A charge a high price, firm A earns $40 and firm B earns $150. What will be the Nash equilibrium outcome, and will there be incentives to collude or cheat? (Hint - use a decision matrix) O a. There is a Nash equilibrium of both firms charging a low price, but there is incentive to collude and charge a high price. Ob. There is a Nash equilibrium of both firms charging a low price, and there is no incentive to collude and charge a high price. OC. There is a Nash equilibrium of both firms charging a high price, but there is incentive to cheat and charge a low price. Od. There is a Nash equilibrium of both firms charging a high price, and there is no incentive to cheat and charge a low price. Oe. There is no Nash equilibrium.

Question 16 Two firms are competing in an oligopoly and they can elect to either charge a high price or a low price. If they both charge a high price, firm A earns $100 and firm B earns $120. If they both charge a low price, firm A earns $70 and firm B earns $60. If firm A charges a low price and firm B charges a high price, firm A earns $200 and firm B earns $50. If firm B charges a low price and firm A charge a high price, firm A earns $40 and firm B earns $150. What will be the Nash equilibrium outcome, and will there be incentives to collude or cheat? (Hint - use a decision matrix) O a. There is a Nash equilibrium of both firms charging a low price, but there is incentive to collude and charge a high price. Ob. There is a Nash equilibrium of both firms charging a low price, and there is no incentive to collude and charge a high price. OC. There is a Nash equilibrium of both firms charging a high price, but there is incentive to cheat and charge a low price. Od. There is a Nash equilibrium of both firms charging a high price, and there is no incentive to cheat and charge a low price. Oe. There is no Nash equilibrium.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter15: Strategic Games

Section: Chapter Questions

Problem 8MC

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