Answered: Table 10-7 A Pricing Game That Is…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter6: Consumer Choices

Section: Chapter Questions

Problem 13CTQ: Think back to a purchase that you made recently. How would you describe your thinking before you...

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Suppose firm A and firm B repeatedly face the situation presented in Table and the interest rate is 40 percent. The firms agree to charge a high price each period, provided neither firm has cheated on this agreement in the past. 1. What are firm A’s profits if it cheats on the collusive agreement? 2. What are firm A’s profits if it does not cheat on the collusive agreement? 3. Does an equilibrium result where the firms charge the high price each period?

Table 10-7
A Pricing Game That Is Repeated
Firm B
Price
Low
High
Low
0,0
50, –40
Firm A
High
-40, 50
10, 10

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