The Table Below Shows Annual Profits Received by Two Oligopolists

question 44

Multiple Choice

The table below shows annual profits received by two oligopolists, Alpha and Beta, depending on whether each company decides whether to live within the collusive agreement they have signed to charge a high price, or to cheat and charge a lower price.

$\begin{array}{}& \text {beta's Strategies }\\ \text {AlPHA'sStrategies }&\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { Don't } \\\text { }\end{array} & \text { Cheat } \\\hline \text { Don'tCheat} & \begin{array}{c}\text { B: } \$ 5 \mathrm{~m} \\\text { A: } \$ 5 \mathrm{~m}\end{array} & \begin{array}{c}\text { B: } \$ 6 \mathrm{~m} \\\text { A } \$ 3 \mathrm{~m}\end{array} \\\hline & \begin{array}{c}\text { B: } \$ 3 \mathrm{~m}\end{array} & \text { B: } \$ 4 \mathrm{~m} \\ \text { Cheat } & \$ 6 \mathrm{~m} & \text { A: } \$ 4 \mathrm{~m} \\\hline\end{array}\\\end{array}$
-The available strategies in the table show that:

• A)if both companies pursue their own self interest by cheating they will do better than if they cooperate
• B)the agreements entered into by oligopolists such as Alpha and Beta are not necessarily long-lasting, given the incentives to cheat
• C)if each company pursues different actions, with the one cheating and the other living within their agreement, they are both better off than if both live within the agreement
• D)if each company pursues different actions, with the one cheating and the other living within their agreement, they are both worse off than if they both live within the agreement
• E)the agreements entered into by oligopolists such as Alpha and Beta are always long-lasting given the penalties associated with cheating

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Definitions:

Generally Accepted Accounting Principles

A collection of commonly-followed accounting rules and standards for financial reporting.

Financial Accountants

Professionals specializing in managing and reporting a company's financial transactions, ensuring compliance with accounting principles and regulations.

Stockholders' Approval

Stockholders' approval is the consent given by shareholders for certain business decisions or corporate actions, typically during a vote at a shareholders' meeting.

Financial Accounting Standards Board

An independent organization responsible for establishing accounting and financial reporting standards for companies and non-profit organizations in the United States.