Using the figure in the picture:1. If firm 1 chooses to sell for $2 and firm 2 chooses to sell for $2. Determine firm 1’s profits and firm 2’s profits. Fill in those profit values in the figure above under the appropriate box 2. If firm 1 chooses to sell for $2.50 and firm 2 chooses to sell for 2.50 determine firm 1’s profit and firm 2’s profit. Fill in those profit values in the figure above under the appropriate box3. Fill in the final two values in the figure above 4 what do you think will be the likely outcome of the market (I.e which prices will each firm choose) if firms 1 and 2 are not allowed to collude? Explain. What do you think will be the likely outcome of the market if the firms are allowed to coordinate their prices. Explain This image depicts a decision matrix for two competing firms, labeled Firm 1 and Firm 2, showcasing their potential pricing strategies and resulting profits. **Matrix Layout:**- **Columns (Firm 2’s Strategies):** - Column 1: "Sell for $2" - Column 2: "Sell for $2.50"- **Rows (Firm 1’s Strategies):** - Row 1: "Sell for $2" - Row 2: "Sell for $2.50" **Cells:**- Each cell of the matrix is divided diagonally, showing the profits for both firms based on their chosen strategies.**Cell Descriptions:**1. **Top-left cell (both charge $2):** - Firm 2’s profit: (Blank) - Firm 1's profit: (Blank)2. **Top-right cell (Firm 1 charges $2, Firm 2 charges $2.50):** - Firm 2’s profit: (Blank) - Firm 1's profit: (Blank)3. **Bottom-left cell (Firm 1 charges $2.50, Firm 2 charges $2):** - Firm 2’s profit: (Blank) - Firm 1's profit: (Blank)4. **Bottom-right cell (both charge $2.50):** - Firm 2’s profit: (Blank) - Firm 1's profit: (Blank)This decision matrix is used to analyze competitive strategies in an oligopolistic market, demonstrating how each firm’s pricing decision affects both their own profit and that of their competitor.

Firms use Nash equilibrium to achieve their best strategy in a non-cooperative game. Pareto efficient outcomes don't always come in Nash equilibrium. A dominant strategy is a strategy where one player chooses a particular action irrespective of the other player's action. (1) Given, two firms can charge the price of $2 or $ 2.5.Say the total demand is 2 in the market.When firm 1 and firm 2 are selling for $2 then each will sold 1 unit. Profit of firm 1 = Price *Quantity Profit of firm 1= $2*1 Profit of firm 1 = $2 Profit of firm 2 = Price *Quantity Profit of firm 2= $2*1 Profit of firm 2 = $2 Thus, firm 1 and firm 2 will earn a profit of $2 when they sold their goods at the same price of $2.(2)If firm 1 and firm 2 are selling the goods at the same price of $2.5, then they will sell 1 unit each. Profit of firm 1 = Price *Quantity Profit of firm 1= $2.5*1 Profit of firm 1 = $2.5 Profit of firm 2 = Price *Quantity Profit of firm 2= $2.5*1 Profit of firm 2 = $2.5 Thus, firm 1 and firm 2 will earn a profit of $2.5 when they sold their goods at the same price of $2.5(3)If firm 1 is selling at $2 and firm 2 is selling at $2.5, then the consumer will buy from firm 1 because his goods are cheaper. Firm 1 will sell 2 units of goods and firm 2 will sell 0 units. Firm 2 Firm2 Sell for $2 Sell for $2.5 Firm 1 Sell for $2 2,2 4,0 Sell for $2.5 0,4 2.5,2.5 Profit of firm1 = .2*2 Profit of firm1 =4 Profit of firm 2=0 Similarly, when firm 2 charges $2 and firm 1 charges $2.5, firm 2 will earn 4 and firm 1 will earn 0. Thus ,if firm2 charges $2 and firm 1 charges 2.5 then firm 2 will earn 4 and firm 1 will earn zero. When firm2 charges $2.5 and firm 1 charges 2 then firm 1 will earn 4 and firm 2 will earn zero(4) When firm 1 sells at $2, then firm 2 will also sell at $2 because the profit of firm 2 at the price of $2 is greater than the profit at the price of $2.5. When firm 1 will charge $2.5, then firm 2 will sell at $2 because the profit of firm 2 for $2 is greater than the profit at the price of $2.5. Similarly, firm 1 will charge $2 .when firm 2 was selling the goods at $2.Firm 1 will charge $2 if firm 2 is charging $2.5 for the good. Hence, the goods will be sold for $2 by both firms in case of no collusion. (5)If firm 1 and firm 2 colluded, they can charge the price of $2.5 and avoid the price competition. If firm 1 and firm 2 collude, they can set the price equal to $2.5 and earn a profit of 2.5.The profit of both firms due to collusion is more than the profit in case of no collusion.Hence, both firms will charge a price of $2.5 in case of collusion.(1)Firm 1 and firm 2 will earn a profit of $2 at the same price of $2.(2)Firm 1 and firm 2 will earn a profit of $2.5 when they charge the same price of $2.5.(3)When firm1 charges $2 and firm 2 charges 2.5, firm 1 will earn 4 and firm 2 will earn zero. When firm2 charges $2 and firm 1 charges 2.5, firm 2 will earn 4 and firm 1 will earn zero.(4)Firm 1 and firm 2 will set a price equal to $2 in case of no collusion.(5)Firm 1 and firm 2 will set prices equal to $2.5 in case of collusion.