Economics (AS & A Level) · Feb / March 2024 · Paper 32 · Question 10

There are two firms in an industry. Firm X faces a choice. It can either act independently or work with its rival. If it acts independently its profit could be $900 a week but it could be only $400 a week depending on what its rival does. If it works with its rival the joint profit of the two firms together would be $1400, $700 each. It has no knowledge of what the rival’s policy will be. Which concept describes this situation?

1. Acontestable market
2. Bkinked demand curve
3. Cprincipal agent problem
4. Dprisoner’s dilemma

As printed in the paper