The following matrix shows the pricing strategies and resultant profits (in thousands of dollars) for two profit-maximizing firms.
Table 9-1
$\begin{array} {c}
\quad\quad \text { Firm B} \
\begin{array}{ | c | c | c | }
\hline \text { Firm } \mathrm { A } & \text { High } & \text { Low } \
\hline \text { High price } & 35,35 & 21,41 \
\hline \text { Low price } & 37,21 & 30,30 \
\hline
\end{array}
\end{array}$
-Refer to Table 9-1. If the firms are able to enforce a collusive agreement, which of the following is most likely?
A) Firm A will earn profit equal to $41,000.
B) Firm A will earn a higher profit than Firm B.
C) Firm A will set a high price while Firm B will set a low price.
D) Firm A and Firm B will earn set a low price.
E) Firm A and Firm B will earn profit equal to $35,000.

Question

The following matrix shows the pricing strategies and resultant profits (in thousands of dollars) for two profit-maximizing firms.
Table 9-1
 $\begin{array} {c}
\quad\quad \text { Firm B}  \
\begin{array}{ | c | c | c | } 
\hline \text { Firm } \mathrm { A } & \text { High } & \text { Low } \
\hline \text { High price } & 35,35 & 21,41 \
\hline \text { Low price } & 37,21 & 30,30 \
\hline
\end{array} 
\end{array}$
-Refer to Table 9-1. If the firms are able to enforce a collusive agreement, which of the following is most likely?
A) Firm A will earn profit equal to $41,000.
B) Firm A will earn a higher profit than Firm B.
C) Firm A will set a high price while Firm B will set a low price.
D) Firm A and Firm B will earn set a low price.
E) Firm A and Firm B will earn profit equal to $35,000.

Quizplus · Accepted Answer

In a collusive agreement, firms agree to avoid competition by setting prices to maximize joint profits. The highest joint profit in the table is $35,000 for each firm when both set high prices, leading to a total profit of $70,000 ($35,000 for each).

The Following Matrix Shows the Pricing Strategies and Resultant Profits