Question 3 (a) (i) Define dominant strategy and explain the strategy that firms would pursue in this games. (ii) Explain why oligopolies have trouble maintaining monopoly profits. (iii) Explain the outcome if ABC and XYZ are expected to compete in the market for a long period of time.

ness practices that a (6 marks) Question 3 (Jan 2007/08) (a) Consider the following payoff matrix for duopoly ABC and XYZ. XYZ's Decision High Price Low Price ABC's Decision RM25 billion profit for ABC High RM100 billion profit for ABC Price RM100 billion profit for XYZ RM140 billion profit for XYZ Low RM140 billion profit for ABC RM80 billion profit for ABC Price RM25 billion profit for XYZ RM80 billion profit for XYZ (i) Define dominant strategy and explain the strategy that firms would pursue in this game. (4 marks) (ii) Explain why oligopolies have trouble maintaining monopoly profits. (iii) Explain the outcome if ABC and XYZ are expected to compete in the market for a (5 marks) long period of time. (5 marks) [Total: 20 marks]