Table: Payoff Matrix The Table Represents the Payoffs for Two Firms Operating as l

question 235

Essay

Table: Payoff Matrix $$\begin{array} { | l | l | l } \hline & \text { Firm l Cheats } & \text { Firm l Doesn't Cheat } \\\hline \text { Firm 2 Cheats } & \text { Firm 1 earns: } & \text { Firm 1 earns: } \\\hline & \$ 2,000 & \$ 1,000 \\\hline & \text { Firm 2 earns: } & \text { Firm } 2 \text { earns: } \\\hline & \$ 2,000 & \$ 4,000 \\\hline & \text { Firm 1 earns: } & \text { Firm 1 earns: } \\\hline & \$ 4,000 & \$ 3,000 \\\hline \text { Doesn't Cheat } & \text { Firm 2 earns: } & \text { Firm } 2 \text { earns: } \\\hline & \$ 1,000 & \$ 3,000 \\\hline\end{array}$$
The table represents the payoffs for two firms operating as a cartel. Based on the payoffs, what is the dominant strategy for each firm? Will the cartel agreement between the two firms be easy or hard to maintain? Explain.

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