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80) In the Nash equilibrium to the game where each firm decides whether to produce g = cartel share or q = 4, A) both firms will produce q = cartel share. B) Firm A will produce g = cartel share and Firm B will produce q = 4. C) Firm A will produce q = 4 and Firm B will produce g = cartel share. D) both firms will produce q = 4. E) there is no Nash equilibrium to this game so the question doesn't have an answer.
80) In the Nash equilibrium to the game where each firm decides whether to produce g = cartel share or q = 4, A) both firms will produce q = cartel share. B) Firm A will produce g = cartel share and Firm B will produce q = 4. C) Firm A will produce q = 4 and Firm B will produce g = cartel share. D) both firms will produce q = 4. E) there is no Nash equilibrium to this game so the question doesn't have an answer.
larryrambo777Lv10
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7 Apr 2018
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The collusion problem of a cartel is simplified as follows. There are two firms, A and B. Each firm can choose to produce two levels of output, H (high) or L (low). The payoffs to the firms are summarized in the following matrix:
| B's payoff | |||
| A's payoff | H | L | |
| H | (2,2) | (14,0) | |
| L | (0,14) | (8,8) |
i. The cartel agreement is for each firm to produce a low level (L). What are the payoffs to the firms if the agreement is observed?
ii. Explain why an individual firm has no incentive to produce a low level of output as specified in the agreement.
