please fast 21. Two rival oligopolists in the coffee industry, Wide Awake and Zuma, have to decide on their pricing strategy. Each can choose either a highprice or a low price. The payoff matrix shows the profits that each firm can expect to earn depending on the pricing strategy it adopts.If the firms act out of individual self-interest, which prices will they select?OA. Both firms will select a high price.O B.O C.O D.Zuma will select a low price and Wide Awake will select a high price.Both firms will select a low price.Zuma will select a high price and Wide Awake will select a low price.Zuma ("Z")High "Z" earnsprice$3 millionLowpriceHigh priceWide Awake ("W")"Z" earns$4 million"W" earns$3 million"W" earns$1 millionLow price"Z" earns$1 million"Z" earns$2 million"W" earns$4 million"W" earns$2 million

Oligopoly is a form of market organization in which there are few sellers of a homogenous or differentiated product. In an oligopoly market, the actions of one firm decides the profit of another firm. These firms can increase their profits by forming collusion.In the given payoff matrix, charging a low price is the dominant strategy of Firm Z no matter what the other does. The reason is that if Firm W charges a high price, Firm Z earns a profit of $3 million if it also charges a high price and $4 million if it charges low price. Similarly, if Firm W charges low price, Firm Z earns a profit of $1 million if it chooses a high price and $2 million if it also chooses a low price. Hence Firm Z should choose low price no matter what Firm W does because Firm Z's profits are always greater when it chooses low price.The same is true for Firm W also. If Firm Z charges high price, Firm W earns a profit of $3 million if it also charges a high price and $4 million if it charges low price. Similarly, if Firm Z charges low price, Firm W earns a profit of $1 million if it chooses a high price and $2 million if it also chooses a low price. Hence Firm W should choose low price no matter what Firm Z does because Firm W's profits are always greater when it chooses low price.Thus selecting a low price is the dominant strategy for both the firms. Therefore if the firms act out of individual self interest, both firms will select a low price. Hence option C is correct and all other options are wrong.Correct choice is,C. Both firms will select a low price.

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Economics

Two rival oligopolists in the coffee industry. Wide Awake and Zuma, have to decide on their pricing strategy. Each can choose either a high price or a low price. The payoff matrix shows the profits that each firm can expect to earn depending on the pricing strategy it adopts. If the firms act out of individual self-interest, which prices will they select? A. Both firms will select a high price. OB. Zuma will select a low price and Wide Awake will select a high price. OC. Both firms will select a low price. O D. Zuma will select a high price and Wide Awake will select a low price. Zuma ("Z") High price High price $3 million "Z earns Wide Awake ("W") Low Zearns price $4 million "W" earns $3 million "W" earns $1 million Low price Z earns $1 million Z earns $2 million "W" earns $4 million "W" earns $2 million

Two rival oligopolists in the coffee industry. Wide Awake and Zuma, have to decide on their pricing strategy. Each can choose either a high price or a low price. The payoff matrix shows the profits that each firm can expect to earn depending on the pricing strategy it adopts. If the firms act out of individual self-interest, which prices will they select? A. Both firms will select a high price. OB. Zuma will select a low price and Wide Awake will select a high price. OC. Both firms will select a low price. O D. Zuma will select a high price and Wide Awake will select a low price. Zuma ("Z") High price High price $3 million "Z earns Wide Awake ("W") Low Zearns price $4 million "W" earns $3 million "W" earns $1 million Low price Z earns $1 million Z earns $2 million "W" earns $4 million "W" earns $2 million

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

please fast 21.

Two rival oligopolists in the coffee industry, Wide Awake and Zuma, have to decide on their pricing strategy. Each can choose either a high
price or a low price. The payoff matrix shows the profits that each firm can expect to earn depending on the pricing strategy it adopts.
If the firms act out of individual self-interest, which prices will they select?
OA. Both firms will select a high price.
O B.
O C.
O D.
Zuma will select a low price and Wide Awake will select a high price.
Both firms will select a low price.
Zuma will select a high price and Wide Awake will select a low price.
Zuma ("Z")
High "Z" earns
price
$3 million
Low
price
High price
Wide Awake ("W")
"Z" earns
$4 million
"W" earns
$3 million
"W" earns
$1 million
Low price
"Z" earns
$1 million
"Z" earns
$2 million
"W" earns
$4 million
"W" earns
$2 million

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