The Principle of Backward Induction Proves That in Price-Fixing Oligopoly

question 13

Multiple Choice

The principle of backward induction proves that in price-fixing oligopoly games:

• A)the players honor the agreement if the game is repeated.
• B)the players honor the agreement if the game is played five times.
• C)the players dishonor the agreement if the game is not played more than twice.
• D)the players dishonor the agreement if the game is repeated a number of times, as determined prior to the start of play.

---

Definitions:

Compound Interest

Interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan.

Per Year

A synonym for annually, denoting events or measurements taking place once every calendar year.

Effective Annual Rate

The interest rate on an investment or loan, which is annualized by considering the effect of compounding over a given period.

Amortized Mortgage

A loan for which the principal and interest are paid down through regular payments over the loan's term, leading to full repayment by the end.