-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:

Belief Hypocrisy

The condition of holding beliefs that one's own behavior does not conform to, often leading to cognitive dissonance when recognized.

Cognitions

The mental processes involved in gaining knowledge and comprehension, including thinking, knowing, remembering, judging, and problem-solving.

Theory of Planned Behavior

An extension of the Theory of Reasoned Action, adding the aspect of perceived behavioral control to predict an individual's intention to engage in a behavior given the opportunity.

Behavioral Control

The regulation of individual behavior through various forms of influence and intervention.