Exhibit 10-6 Two-Firm Payoff Matrix
Suppose costs are identical for the two firms in Exhibit 10-6. Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price. Under these "tit-for-tat" conditions, equilibrium will be established by:
A. Widget Co. charging the high price and Ajax Co. charging the low price.
B. Widget Co. charging the high price and Ajax Co. charging the high price.
C. Widget Co. charging the low price and Ajax Co. charging the low price.
D. Widget Co. charging the low price and Ajax Co. charging the high price.
Answer: B
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The evidence on the potential for input substitution in the service sector suggests that:
A) there may be more opportunities for input substitution than was previously thought, especially in areas such as health care, financial services, and the even the fine arts. B) the traditional view that the potential for input substitution is extremely limited is correct. C) while one or two areas of the service sector may see a small amount of input substitution, most areas will see little or none. D) input substitution will only be feasible so long as the production process requires a relatively small amount of labor to begin with.
Most economists who have studied the health care industry have concluded that there is:
A. An under allocation of resources for health care in the United States B. An over allocation of resources for health care in the United States C. Insufficient technological progress in the medical industry D. A need for government price controls for physicians' fees