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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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