(Table: Firms A and B IX) Two firms have formed an agreement to restrict output. 
They are playing an infinitely repeated game in which output decisions must be made every period. Both firms are using a grim trigger strategy. At what value of d (discount rate) would Firm A be indifferent about keeping the agreement or cheating on the agreement?
Definitions:
Payback Method
A capital budgeting technique that calculates the time required for an investment to generate cash flows sufficient to recover its initial cost.
Time Value of Money
The principle that holding money now is more valuable than possessing the same sum at a later date because of its current potential to generate earnings.
Discount Rate
The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.
Net Present Value
An evaluation metric that calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time.
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