ECON 5136 ECON 5136: MANAGERIAL ECONOMICS Homework #7 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: 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 Construct a payoff matrix for these two firms. b . If each firm acted non-cooperatively, how much profit would each make? C. Are the firms better off colluding (with no cheating) or competing? Explain