Consider the Following Payoff Matrix for a Game in Which

question 95

Multiple Choice

Consider the following payoff matrix for a game in which two firms attempt to collude under the Bertrand model:

Here, the possible options are to retain the collusive price (collude) or to lower the price in attempt to increase the firm's market share (cut) . The payoffs are stated in terms of millions of dollars of profits earned per year. What is the Nash equilibrium for this game?

• A) Both firms cut prices.
• B) Both firms collude.
• C) There are two Nash equilibria: A cuts and B colludes, and A colludes and B cuts.
• D) There are no Nash equilibria in this game.

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Definitions:

Weighted-Average Method

An inventory costing method that calculates the cost of goods sold and ending inventory based on an average cost of all goods available for sale.

Total Cost Transferred

The total amount of costs moved from one stage of production to the next, or from one department to another.

Processing Department

A division within a factory where a specific stage of production is completed, contributing to the transformation of raw materials into finished products.

Cost System

A method employed by a business to track, record, and analyze costs, aiding in financial planning and cost control.