Two firms are in the chocolate market. Each can choose to go for the high end of the market (high quality) or the low end (low quality). Resulting profits are given by the payoff matrix below.

Which firm benefits the most from the cooperative outcome? The firm that benefits the most from the cooperative outcome is ?

a. Firm 1

b. Firm 2

This firm would need to pay the other firm ?

$_________ enter your response here

to persuade it to collude. (Enter the numeric response using an integer.)

*Note --> $400

One or more of your responses is incorrect.

The cooperative outcome occurs when Firm 1 chooses high and Firm 2 chooses low, where joint payoffs equal $1400. At this outcome, Firm 1's payoff is $400 and Firm 2's payoff is$1000.

The amount that Firm2 would need to pay Firm1 to persuade it to collude is

Firm1's maximum payoff minus the payoff Firm1 receives when colluding.

		Firm 2
		Low	High
Firm 1	Low	50, 30	800, 400
High	400, 1000	50, 70