Answer to Question #127907 in Microeconomics for Brenda Formin

Question

Consider the following payoff matrix in which the numbers indicate the profit in millions of dollars for a duopoly based either on a high-price or a low-price strategy. (7 marks)
Firm A
High-price Low-price
High-price A = $500
B = $500 A = $650
B = $300

Firm B
Low-price A = $300
B = $650 A = $400
B = $400

(a) What will be the result when each firm chooses a high-price strategy?
(b) What will be the result when Firm A chooses a low-price strategy while Firm B maintains a high-price strategy?
(c) What will be the result when Firm B chooses a low-price strategy while Firm A maintains a high-price strategy?
(d) What will be the result when each firm chooses a low-price strategy?
(e) What two conclusions can you draw about collusion?

Answer 1

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