(Table: Lemonade) Andrei and Sonya Operate Lemonade Stands in the Same

question 14

Multiple Choice

(Table: Lemonade) Andrei and Sonya operate lemonade stands in the same neighborhood. Payoffs are in quarters . The kids have formed an agreement to restrict output. They are playing an infinitely repeated game in which output decisions must be made every period and both of them are using tit-for-tat trigger strategies. If the discount rate is d = 0.25, then the players ____.

• A) prefer to collude rather than not to collude
• B) prefer not to collude rather than to collude
• C) are indifferent between colluding and not colluding
• D) Not enough information is given in the problem to determine preference for collusion.

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Definitions:

Retained Profits

Earnings not distributed to shareholders and held back by the company for reinvestment or to pay off debt.

Ultimate Parent

The highest level or top company in a corporate structure, which holds control over all subsidiary companies within the group.

Corporate Groups

A collection of parent and subsidiary companies that function as a single economic entity through a common source of control.