Refer to the table below to answer the following questions.
Table 14.2.10
-Refer to Table 14.2.10.Firm A and Firm B are the only producers of soap powder.They collude and agree to share the market equally.The payoff matrix shows the game they play.The equilibrium of the game is that Firm A ________ and Firm B ________.
A)complies;cheats
B)cheats;complies
C)complies;complies
D)cheats;cheats
E)makes an economic profit;incurs an economic loss

Question

Refer to the table below to answer the following questions.
Table 14.2.10 
-Refer to Table 14.2.10.Firm A and Firm B are the only producers of soap powder.They collude and agree to share the market equally.The payoff matrix shows the game they play.The equilibrium of the game is that Firm A ________ and Firm B ________.
A)complies;cheats 
B)cheats;complies 
C)complies;complies 
D)cheats;cheats 
E)makes an economic profit;incurs an economic loss

Quizplus · Accepted Answer

The best choice for each firm is to cheat, as this will result in a higher payoff than complying. If both firms cheat, they will each receive a payoff of 5. If one firm cheats while the other complies, the cheating firm will receive a payoff of 8 while the complying firm will receive a payoff of 2. Therefore, the equilibrium of the game is that both firms will cheat (D).

Refer to the Table Below to Answer the Following Questions