Use the table explain the mutual interdependence which characterizes oligopolistic industries. Given you answer to question B., explain why price collusion is mutually profitable. Graphically show what quantity they must jointly produce to maximize industry profits. Show how the two firms might then distribute production between themselves to achieve this monoplistic outcome. If both firms cheat while assuming the other will not, show the market level of production and the resulting price.
Some oligopic markets have very few price changes.
Two firms, Twiddledee and Twiddledum, make up the entire market for wodgets. They have identical costs. Twiddledee has a new CEO, Mr. Notsonice, who is considering cheating. You have been hired by Mr. Notsonice. A. Construct a payoff matrix for him which captures the essence of the decision.