Suppose the Game Is Infinitely Repeated, and the Interest Rate

question 34

Multiple Choice

Suppose the game is infinitely repeated, and the interest rate is 5%.Both firms agree to charge a high price, provided no player has charged in low price in the past.If both firms stick to this agreement, then the present value of Firm B's payoffs are:

• A)105.
• B)190.
• C)210.
• D)525.

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Definitions:

Domestic Producers

Companies or individuals that manufacture or produce goods and services within their home country, as opposed to importing them from abroad.

Tariffs and Quotas

These are trade policies where tariffs are taxes on imported goods, and quotas are limits on the amount of a good that can be imported.

Import Substitution

An economic policy aimed at replacing foreign imports with domestic production to promote local industries.

Foreign Competition

Competition that domestic companies face from companies located in other countries, influencing markets, pricing, and innovation.