Suppose There Are Only Two Firms in an Industry

question 27

Multiple Choice

Suppose there are only two firms in an industry.If they each set a high price,they each earn $5000.If they each set a low price,they each earn $2500.If one firm sets a low price while the other sets a high price,the low-price firm earns $7000 while the high-price firm earns $1000.Does a prisoners' dilemma exist?

• A)yes,because there is always a prisoner's dilemma in game theory
• B)it cannot be determined from the information provided
• C)yes,the Nash equilibrium does not maximize the joint payoff
• D)no,the Nash equilibrium does not maximize the joint payoff
• E)no,the Nash equilibrium does not maximize the individual payoff

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Definitions:

Approximately Normal

Describes data that roughly follows a normal distribution, though it may not perfectly fit the normal curve.

Z Test Statistic

A type of statistical test where the test statistic follows a normal distribution under the null hypothesis.

Population Proportion

The fraction or percentage of a population that possesses a particular attribute or characteristic.

Sampling Distribution

The framework of distributed probabilities for an established statistic, gathered from random sampling.