shows.

Firm B colludes with Firm A Firm B cheats by selling more output

Firm A colludes with Firm B

A gets $1,000, B gets $100 A gets $800, B gets $200

Firm A cheats by selling more output A gets $1,050, B gets $50

A gets $500, B gets $20

TABLE 10.4

Assuming that both firms know the payoffs, what is the likely outcome in this case?

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10 • Review Questions 255

Review Questions

5. What is the relationship between product differentiation and monopolistic competition?

6. How is the perceived demand curve for a monopolistically competitive firm different from the perceived

demand curve for a monopoly or a perfectly competitive firm?

7. How does a monopolistic competitor choose its profit-maximizing quantity of output and price?

8. How can a monopolistic competitor tell whether the price it is charging will cause the firm to earn profits

or experience losses?
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