Firms A and B are two rivals that must choose a price strategy. If they both choose a high price, firm As profit is $75 and firm Bs profit is $75. If they choose a low price, firm As profit is $15 and firm Bs profit is $15. If A chooses a low price while B chooses a high price, As profit is -$75 (a loss) while Bs profit is $150. If A chooses a high price while B chooses a low price, As profit is $150 while Bs profit is -$75 (a loss). If it is illegal for Firm A and Firm B to sign a binding contract but the game is repeatedrepeated

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    Firm A and Firm B would both charge higher prices.
     the optimal strategy would be for both Firm A and Firm B to charge low prices.
     Firm A charge a low price in order to earn a profit of $150.
     the two firms would continue to pursue their dominant strategies as there is no opportunity for higher profits as they learn the repeated outcomes.
asked Jun 2, 2013 in Economics by anonymous
    

1 Answer

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Firm A and Firm B would both charge higher prices.
answered Jun 3, 2013 by Xyz ~Expert~ (3,650 points)

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