his Question 4 pts 20 or 24 18 complete The matrix to the r

his Question: 4 pts 20 or 24 (18 complete) > The matrix to the right shows payoffs (profits in millions) based on the strategies chosen by two firms If they collude and hold prices at $1.25, than each firm will eam profits of S20 million. If firm A cheats on the agreament, lowering its price, but firm B does not, then firm A will get 75 parcent of the business and eam profits of $32 million and firm B will lose $3 million. Similarty, if firm 8 cheats and fim A does not, then firm B will earn $32 million and firm A ill lose $8 million. If both irms cut prices, then they will end up with $8 millo each in profits Which strategy minimizes the maximum potential loss for fim A and for firm B? The maximin strategy for both firms is to If you were firm A, which strategy would you choose? Firm A should B\'s Strategy Chaat 520 532 gr$20 S-8 A\'s Strateg O A. stand by the agreement because this is their dominant strategy O B. cheat because this is their dominant strategy O C. cheat because this maximizes prohts of bath firns. O D. stand by the agrement because this is their maximin strategy OE. stand by the agreement because this is their Lit-for tat strategy 58 532 58 If finm A cheats, then firm B wil and if firm B cheats, then firm A will What is the most likely outcome of such a game? Explain? A. Firm A will cheal and firm B will stand by he agreement because these are their maximin strategies OB. Firm A will stand by the agreement and firm B will cheat because these are their dominant strategies. C. Firm A and firm B will both stand by their agreement because daing so maximizes combined profts OD. Firm A and firm B will both cheat because doing so is each firm\'s dominant strategy O E. Firm A and firm B will both stand by their agreement because doing so is each firn\'s dominant strategy lick to sclect your answer

Solution

1. Maximin strategy maximizes the minimum gain that can be achieved. Both firm A and B\'s dominant startegy - Cheat.

The maximin strategy for both firms A and B is to: Cheat

Firm A should: (b) Cheat because this is their dominant strategy

If firm A cheats then firm B will also cheat, and if firm B cheats then firm A will cheat.

The most likely outcome of such a game is:

(d) Firm A and Firm B will both cheat because it is their dominant startegy.