Question

multiple choice question based on the figure, if one firm cheats on the collusive agreement it can increase its payoff by o $3. o $1. o $15. o $4. o $6.

Explanation:

Step1: Identify collusive - agreement pay - off

In a collusive agreement, firms likely choose the high - high strategy (top - left cell A), where each firm gets a pay - off of $12.

Step2: Identify pay - off when one firm cheats

If one firm cheats and goes for the low - price while the other stays high, the cheating firm gets a pay - off of $15 (cell B or C).

Step3: Calculate the increase in pay - off

The increase in pay - off when cheating is $15−$12 = $3.

Answer:

$3.