Is this simultaneous output decision a prisoners dilemma

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Reference no: EM13200900

Two rival distillers, Sluggo (S) and Wormy (W), sell tequila in Hammond. The market demand for the two brands is:

QM = 295 - 2.5P

Average and Marginal production costs are constant: ATCS = MCS = 6 and ATCW = MCW = 14
The two firms must make a simultaneous output decision.

a) On the graph, draw the best response curves for Wormy (BRW) and for Sluggo (BRS). Be sure and label all significant points. (show your work below)

b) What will be the resulting price charged? How many bottles of tequila will each firm sell?

c) Suppose the firms colluded to fix output at QS = 90 and QW = 70. Fill in the missing price and profit information in the payoff table below, where the other output choice is the output for each firm that you determined above. Is this simultaneous output decision between the two firm a prisoners' dilemma? Why or why not?

Reference no: EM13200900

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