Question: Question 1 (10 marks) Use the following normal-form game to answer the questions below. Firm B Strategy Firm A High Price Low Price High

Question 1 (10 marks) Use the following normal-form game to answer the

Question 1 (10 marks) Use the following normal-form game to answer the questions below. Firm B Strategy Firm A High Price Low Price High Price $300, $300 $900,-$150 Low Price $150, $900 $150, $150 Suppose the game is infinitely repeated, both firms agree to charge a high price, provided no player has charged low price in the past. (a) What is the maximum value of the interest rate, such that collusion can be sustained? (b) Suppose now the interest rate is 10%, and the payoffs for both players are $X in the one-shot Nash equilibrium. What is the maximum value of $X, such that collusion can be sustained?

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