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Alex777 [14]
3 years ago
9

Consider a Caribbean cruise route served by two cruise​ lines, Carnival and Royal Caribbean. Both lines must choose whether to c

harge a high price ​($280280​) or a low price ​($260260​) to vacationers. These price strategies with corresponding profits are illustrated in the payoff matrix to the right. ​ Carnival's profits are in red and Royal​ Caribbean's are in blue. Suppose the cruise lines decide to collude. At which outcome are joint profits​ maximized? Joint profits are maximized when Carnival picks $260 and Royal Caribbean picks $
Business
1 answer:
Naddika [18.5K]3 years ago
7 0

Answer:

Joint profits are maximized when Carnival picks $260 and Royal Caribbean picks <u>$260</u>.

Explanation:

                                                 Royal Caribbean

                                   high price                   low price

                                  $9,000 /                  $14,720 /

              high price                 $9,000                    $1,620

Carnival

              low price     $1,620 /                   <u>$8,320</u> /

                                               $14,720                    <u>$8,320</u>

Carnival's dominant strategy is to charge a low price ($260) because it yields the highest profits = $14,720 + $8,320 = $23,040.

Royal Caribbean's dominant strategy is to charge a low price ($260) because it yields the highest profits = $14,720 + $8,320 = $23,040.

Since both companies have the same dominant strategy, a Nash equilibrium exists when they both charge a low price ($260).

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