Use the table below to answer the following question.
Table 14.3.1
-Consider the game shown in Table 14.3.1 based on potential gas prices between two competitors.The game is played repeatedly and the result is a cooperative equilibrium.The payoffs in the table show the economic profit of the firms.The most likely outcome is
A)a cycle of first $0.95/litre,then $1.15/litre,etc.
B)Hare sets her prices at $1.15/litre,and Turtle sets his at $0.95/litre.
C)Hare sets her prices at $0.95/litre,and Turtle sets his at $1.15/litre.
D)both set their prices at $1.15/litre.
E)both set their prices at $0.95/litre.

Question

Use the table below to answer the following question.
Table 14.3.1 
-Consider the game shown in Table 14.3.1 based on potential gas prices between two competitors.The game is played repeatedly and the result is a cooperative equilibrium.The payoffs in the table show the economic profit of the firms.The most likely outcome is
A)a cycle of first $0.95/litre,then $1.15/litre,etc. 
B)Hare sets her prices at $1.15/litre,and Turtle sets his at $0.95/litre. 
C)Hare sets her prices at $0.95/litre,and Turtle sets his at $1.15/litre. 
D)both set their prices at $1.15/litre. 
E)both set their prices at $0.95/litre.

Quizplus · Accepted Answer

In a cooperative equilibrium, firms work together to maximize their profits. Setting prices at $1.15/litre would be the most likely outcome as it allows both firms to earn higher profits compared to any other combination of choices, assuming they can avoid the temptation to undercut each other.

Use the Table Below to Answer the Following Question