(Table: Firms a and B I) the Payoffs Represent Profits

question 158

Multiple Choice

(Table: Firms A and B I) The payoffs represent profits in thousands of dollars. Suppose that two firms are playing an infinitely repeated game. In period 6, Firm B decides it will no longer cooperate with Firm A. If Firm A is using a grim trigger strategy, Firm A will choose:

• A) a low price in period seven and all future periods.
• B) a low price in period seven and a high price in all future periods.
• C) to set price below marginal cost and drive Firm B out of the market.
• D) to maintain a high price in all future periods.

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Definitions:

Break-even Point

The point at which total costs and total income are equal, so there is no loss or gain, and the business is just covering all its costs with its sales revenue.