Using the payoff matrix, and assuming no collusion between X and Y, what is the likely pricing outcome? A. Both firms will set the price at $35. B. Both firms will set the price at $40. C. Firm X will charge $35 and firm Y will charge $40. D. Firm X will charge $40 and firm Y will charge $35. Price collusion is mutually profitable because each firm achieves A. higher profits. B. increased sales. C. lower costs. D. higher productivity.

Question

Dwayne Ross

Business

30 July, 19:34

Using the payoff matrix, and assuming no collusion between X and Y, what is the likely pricing outcome? A. Both firms will set the price at $35. B. Both firms will set the price at $40. C. Firm X will charge $35 and firm Y will charge $40. D. Firm X will charge $40 and firm Y will charge $35. Price collusion is mutually profitable because each firm achieves A. higher profits. B. increased sales. C. lower costs. D. higher productivity.

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Farmer · Answer 1

A - Both firms will set the price at $35

Explanation:

When there is no collusion,

When Y charges $40, X's best strategy is to charge $35 since payoff is higher ($59 > $57).

When Y charges $35, X's best strategy is to charge $35 since payoff is higher ($55 > $50).

When X charges $40, Y's best strategy is to charge $35 since payoff is higher ($69 > $60).

When X charges $35, Y's best strategy is to charge $35 since payoff is higher ($58 > $59).

Therefore Nash equilibrium is: ($35, $35).