Homework answers / question archive / There are only two firms in the peanut market in Mexico, firm A and firm B (i

There are only two firms in the peanut market in Mexico, firm A and firm B (i

Economics

Share With

There are only two firms in the peanut market in Mexico, firm A and firm B (i.e. a duopoly). If the firms collude, they can set the price of peanuts in the market above the equilibrium price. The equilibrium price of peanuts is currently $500 per ton, if there is no interference by either of the firms in the operation of the market. Both firms are considering setting the price at $600 per ton. If the firms do not set the price and accept the equilibrium price then they each will gain a profit of $7.5 million. If firm A attempts to set the price of peanuts at $600 per ton, but firm B does not and goes with the equilibrium price then firm A will earn a loss equal to $5 million and firm B will profit $10 million. If firm B attempts to set the price of peanuts at $600 per ton, but firm A does not and goes with the equilibrium price the firm B will earn a loss equal to $4 million and firm A will profit $9 million. If both forms collude and set the price of peanuts at $600 per ton then both firms will earn a profit of $8.5 million. Use this information to answer the following 5 questions. Question 1 6 pts Fill in the payoff matrix for the normal form of the game below. The payoffs should be entered as "Payoff for Firm B. Payoff for Firm Ale.g. $500,$300). Enter amounts in millions of dollars. For example, if the payoff is $3 million, then just enter 3. Do not enter dollar signs Firm A $500 $600
Question 1 6 pts Fill in the payoff matrix for the normal form of the game below. The payoffs should be entered as "Payoff for Firm B, Payoff for Firm A" (e.g. $500,$300). Enter amounts in millions of dollars. For example, if the payoff is $3 million, then just enter 3. Do not enter dollar signs. Firm A $500 $600 $500 Firm B $600 Question 2 2 pts If Firm A sets a price of $500, then Firm B's best response is to set the price at: $500 5600 Question