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Explain why the payoff matrix in Problem indicates that firms A and B face the prisoners' dilemma.
Problem states: from the following payoff matrix, where the payoffs are the profits or lesses of the two firms, determine (a) whether firm A has a dominant strategy, (b) whether firm B has a dominant strategy, and (c) the optimal strategy for each firm
firm B
Low Price High Price
Low Price (1,1) (3, 21)
Firm A High Price (21,3) (2,2)
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The relevant cost functions are C(Qi) = 4Qi, and the inverse market demand curve for this unique product is given by P = 160 - 2Q. Currently, you and your rival simultaneously (but independently) make production decisions, and the price you fetch ..
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