Question

Walmart and Target are the only stores in a remote town that currently stock and sell the PlayStation 5 video game console. Managers at both stores are simultaneously deciding whether to charge a price of $1,000 or $1,500 for each console. If both stores charge $1,000, they earn a profit of $100,000 each. If both stores charge $1,500, they earn a profit of $200,000 each. If one store charges $1,000 and the other store charges $1,500, the store that charges $1,000 earns a profit of $250,000 and the firm that charges $1,500 earns a profit of $50,000. If Walmart and Target ________, they can both charge $1,500 and earn the highest combined profit available.
A. compete with each other only with regard to price and not quantityB. privately undercut each other after making an agreementC. collude with each otherD. engage in spirited price competitionE. compete with each other only with regard to quantity and not price

Answer 1

Answer:

Option D is correct

Explanation:

The products sold by both of them have no difference in quality so price difference affects the profit on the console for any of the organisation with higher price in other words having equal price for console would maximize profit for Wal-Mart and target since demand for product is high.