The Following Payoff Matrix Shows the Possible Profits That Each

question 54

Multiple Choice

The following payoff matrix shows the possible profits that each firm will earn under different pricing strategies. The firms can choose to have lower prices in order to lure away customers from the competitors or higher prices in order to increase their profits. The profits are measured in million dollars. Which of the following is most likely to be true of the game?Figure 9.5:

• A)The dominant strategy for both the firms is keep their prices high.
• B)Neither firm has a dominant strategy.
• C)Both firms would be better off if they collude and keep their prices high.
• D)Both firms would be better off if they collude and keep their prices low.
• E)Both firms serve their best interest by not colluding.

---

Definitions:

Economic Profit

The discrepancy between gross revenue and comprehensive costs, inclusive of both apparent and implied expenses.

Marginal Cost

The supplementary cost associated with manufacturing one more unit of a good or service.

Decreasing Its Output

A strategy or condition where a firm reduces the quantity of goods or services it produces, often in response to lower demand or to increase prices.

Marginal Revenue

Marginal revenue is the additional income generated from selling one more unit of a good or service, critical for determining the optimal level of output for profit maximization.