-Consider the infinitely-repeated pricing game depicted in Figure 4.4. What is the present value of the stream of payoffs from collusion if the discount rate is 10 percent?
A) $270
B) $330.
C) $370.
D) $500.
E) $550.

Question

-Consider the infinitely-repeated pricing game depicted in Figure 4.4. What is the present value of the stream of payoffs from collusion if the discount rate is 10 percent?
A) $270 
B) $330. 
C) $370. 
D) $500. 
E) $550.

Quizplus · Accepted Answer

The present value of an infinite stream of payoffs from collusion can be calculated using the formula for the present value of a perpetuity: PV = C / r, where C is the annual payoff and r is the discount rate. Assuming the annual payoff from collusion is $55 (as implied by the choices), and the discount rate is 10% (0.10), the present value is $55 / 0.10 = $550.

-Consider the Infinitely-Repeated Pricing Game Depicted in Figure 4