The payoff matrix shows all of the following EXCEPT
A) if both oligopolists choose a high price, each makes $6 million.
B) if they both choose a low price, each makes $4 million.
C) if one chooses a low price and the other doesn't, the low priced firm will make $8 million.
D) if one oligopolist chooses a high price and the other doesn't, the high-priced firm makes $8 million.

Question

The payoff matrix shows all of the following EXCEPT 
A) if both oligopolists choose a high price, each makes $6 million. 
B) if they both choose a low price, each makes $4 million. 
C) if one chooses a low price and the other doesn't, the low priced firm will make $8 million. 
D) if one oligopolist chooses a high price and the other doesn't, the high-priced firm makes $8 million.

Quizplus · Accepted Answer

The best choice for each oligopolist is to choose a high price because this results in the highest individual profit ($8 million) regardless of what the other firm chooses. Hence, the optimal outcome for both firms will be to choose a high price.

The Payoff Matrix Shows All of the Following EXCEPT