1.There are two firms in the residential paint industry, Cool Shades (C) and Warm Hues (W). They collude to share the market equally. They jointly set a monopoly price and split the quantity demanded at that price. Here are their options:

i.They continue to collude (no cheating) and make $12 million each in profits.

ii.One firm cheats and the other does not. The firm that cheats makes a profit of $14 million, whereas the firm that does not makes a profit of $9 million.

iii.They both cheat and each firm makes a profit of $7 million.

a.Construct a payoff matrix for these two firms.