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 to the right.What outcomes, if any, are Nash equilibria?The outcomes that are Nash equilibria are

A.

when Firm 1 chooses high and Firm 2 chooses high and when Firm 1 chooses low and Firm 2 chooses high.

B.

when both firms choose low and when both firms choose high.

C.

when Firm 1 chooses low and Firm 2 chooses low and when Firm 1 chooses low and Firm 2 chooses high.

D.

when Firm 1 chooses high and Firm 2 chooses low and when Firm 1 chooses high and Firm 2 chooses high.

E.

when Firm 1 chooses high and Firm 2 chooses low and when Firm 1 chooses low and Firm 2 chooses high.

If the managers of both firms are conservative and each follows a maximin strategy, what will be the outcome?The outcome if both managers follow maximin strategies is for

A.

Firm 1 to choose low and Firm 2 to choose low.

B.

Firm 1 to choose high and Firm 2 to choose high.

C.

Firm 1 to choose low and Firm 2 to choose high.

D.

Firm 1 to choose high and Firm 2 to choose low.

E.

none of the above.

What is the cooperative outcome?The cooperative outcome is for

A.

Firm 1 to choose high and Firm 2 to choose high.

B.

Firm 1 to choose

low

and Firm 2 to choose

high.

C.

Firm 1 to choose

high

and Firm 2 to choose

low.

D.

Firm 1 to choose low and Firm 2 to choose low.

E.

none of the above.

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

Firm 1

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.)

Low High

-40, 20	1200, 200
500,1000	80.90