-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:

Free Trade

An economic policy that allows goods and services to be bought and sold across international borders with minimal or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.

Leather Wallets

Items crafted from leather designed to hold cash, cards, and other small personal items.

Domestic Price

The price of a good or service within a country's borders, influenced by domestic supply and demand conditions.

Free Trade

Cross-border trade allowed to proceed without any tariffs, quotas, or imposed restrictions.