Oscar -Oscar and Felix Are the Only Firms That Clean Offices

question 115

Multiple Choice

Oscar

-Oscar and Felix are the only firms that clean offices in a large city. They agree to operate as a cartel. The payoff matrix above shows the economic profit that each firm can make. If the game is played only once, then _______.

• A) Felix will comply and Oscar will make $12 million economic profit
• B) Felix and Oscar will each make $10 million economic profit
• C) Felix and Oscar will each make $1 million economic profit
• D) Felix will cheat and Oscar will make - $2 million economic profit

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Definitions:

Returns To Scale

The change in output resulting from a proportional change in all inputs (factors of production) in the production process.

Production Function

A mathematical model that describes the relationship between inputs used in production and the resulting output of goods or services.

Input

Resources or factors used in the production process of goods and services, such as labor, capital, and materials.

Production Function

A mathematical model that describes the output generated from combinations of inputs, such as labor and capital.