If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertises, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non-advertising firm will earn $1 million. Suppose this game is repeated for a finite number of times, but the players do not know the exact date at which the game will end. The players can earn collusive profits as a Nash equilibrium to the repeated play of the game if the probability the game terminates in any period is:
A. 1.
B. close to zero.
C. greater than 1.
D. None of the answers is correct.
Answer: B
Economics
You might also like to view...
If a firm's marginal product of labor is less than its average product of labor, then an increase in the quantity of labor it employs definitely will
A) decrease its total product. B) decrease its average product of labor. C) increase its marginal product of labor. D) not change its average product of labor.
Economics
Which of the following is NOT a potential reason for wage differences by race or sex?
A) discrimination B) differences in human capital C) differences in the degree of specialization D) All of the above are potential reasons for wage differences by race or sex.
Economics