The prisoner's dilemma shown displays the payoffs associated with two firms: Firm A and Firm B. These firms are in an oligopoly, and they can choose to either collude or compete.### Payoff Matrix Explained:- **FIRM A's Choices:** - **Collude (Produce 20m)** - **Compete (Produce 35m)**- **FIRM B's Choices:** - **Collude (Produce 30m)** - **Compete (Produce 50m)**#### Payoffs:1. **Both Firms Collude:** - **Firm A:** $200m profits - **Firm B:** $300m profits2. **Firm A Colludes, Firm B Competes:** - **Firm A:** $50m profits - **Firm B:** $400m profits3. **Firm A Competes, Firm B Colludes:** - **Firm A:** $300m profits - **Firm B:** $170m profits4. **Both Firms Compete:** - **Firm A:** $100m profits - **Firm B:** $200m profits### Question:Given the payoffs in this matrix, Firm A:1. does not have a dominant strategy2. has a dominant strategy to compete3. has a dominant strategy to collude4. none of these are true

In a game, one of the players often experiences the advantage of experiencing a higher pay-off rate irrespective of the situation. In simpler terms, the player receives a higher value for playing the game and will not be bothered by the move taken by the other player as they have a fixed strategy to choose from. This is termed a dominant strategy. Given the pay-off matrix it can be seen that if Firm B decides to collude, the for Firm A, the best strategy would be to compete. The reason is that by choosing to compete, Firm A receives $300m profit while choosing to collude, the return is $200m profit. On the other hand, if Firm B decides to compete, then also Firm A will choose to compete as by competing the return is $100m but for colluding the profit is $50m profit. Therefore, it can be said that irrespective of the strategy undertaken by the Firm B, Firm A will always be competing. Hence, Firm A has dominant strategy towards competing. Option B is the correct solution Option A is rejected as it is observed that Firm A will be competing with Firm B irrespective of the solution.Option C is rejected as Firm A's return from colluding is lower in both the cases in comparison with competing. Option D gets rejected as Option B provides the correct solution. The correct solution is Option B: Firm A has a dominant strategy to compete with Firm B.

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The prisoner's dilemma shown displays the payoffs associated with two firms: Firm A and Firm B. These firms are in an oligopoly and they can choose to either collude or compete. FIRM B Collude Produce 20m Collude Produce 30m B: $300m profits A: $200m profits Given the payoffs in this matrix, Firm A: Compete Produce 50m B: $400m profits FIRM A A: $50m profits 1. does not have a dominant stratgegy 2. has a dominant strategy to compete 3. has a dominant strategy to collude 4. none of these are true Compete Produce 35m A: $300m profits B: $170m profits A: $100m profits B: $200m profits

The prisoner's dilemma shown displays the payoffs associated with two firms: Firm A and Firm B. These firms are in an oligopoly and they can choose to either collude or compete. FIRM B Collude Produce 20m Collude Produce 30m B: $300m profits A: $200m profits Given the payoffs in this matrix, Firm A: Compete Produce 50m B: $400m profits FIRM A A: $50m profits 1. does not have a dominant stratgegy 2. has a dominant strategy to compete 3. has a dominant strategy to collude 4. none of these are true Compete Produce 35m A: $300m profits B: $170m profits A: $100m profits B: $200m profits

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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