-The Only Two Firms in a Market Are Trying to Decide

question 159

Multiple Choice

-The only two firms in a market are trying to decide what price to charge.The payoff matrix for this duopoly game is shown above.The payoffs are thousands of dollars of economic profit.Which of the following statements is correct?

• A) If the firms play this game repeatedly, one would end up charging $20 and the other $10.
• B) If the firms cooperate, both could make $55,000 in economic profit.
• C) The Nash equilibrium in this game is for both firms to set P = $20 because that maximizes their combined profit.
• D) Firm B's strategy is to always set P = $20 because that gives Firm B the highest possible profit.
• E) If Firm B sets P = $20, then Firm A will maximize its profit by setting its P = $20.

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Definitions:

Expected Price

The price level that consumers, investors, or businesses predict or assume will prevail in the future based on current information.

Oral Auction

A traditional auction where bidders shout out their bid prices, and the highest visible bid at the end wins the item.

Bidders

Individuals or entities that offer a price for goods, services, or assets in an auction or competitive bid process.

Auction Information

Details and data related to items, bidding process, and rules of an auction, provided to potential participants.