Economics (AS & A Level) · Oct / Nov 2024 · Paper 32 · Question 9

Firm X is considering whether to co-operate with its rival so that their joint profit is $4000 a month ($2000 each). It calculated that, if it did not co-operate, its own profit would be $2800 a month provided it kept all its customers itself. However, if its rival undercut X's price and took some of X's customers then X's profit would be $1200. It has no knowledge of what the rival's policy will be. What describes the situation that the firm is facing?

1. Amonopoly profit maximisation
2. Bprincipal agent problem
3. Cprisoner's dilemma
4. Dsatisficing

As printed in the paper