Answer:Please refer to the explanation section
Step-by-step explanation:
The question is incomplete, we need profit figures corresponding to each decision in order to be able to assess which decision would the best for a firm given the the Market conditions.We will illustrate how questions of this nature are answered by providing assumed profit figures.
- When both firm charge Low price each firm will earn a profit of $2 million
- When Both firms charge High prices each firm will a profit of $4 million
- When one firm charges High Price and one firm charges low price, one firm will earn a profit of $7 million and another Firm will earn $1 million.
We Assume Movietonia and videotech do not communicate, Meaning each firm doesnot know what the other firm is planning to do.
Pareto optimal efficiency is achieved when Movietonia and Videotech both charge high prices. When both firms charge high prices they Both earn a profit of $4 million each, at this level it is not possible for each firm to earn more profit without making the other firm worse off. if one firm changes to low Prices they will loose $3 million (4 million - 1 million) in profits and earn $1 million
The best Strategy for movietonia is to charge High Price from the start, if Videotech starts with low Prices Movietonia will earn a $7 million , if Videotech starts with high prices Movietonia will earn a profit of $ 4 million
The best Strategy for Videotech is to charge High Price from the start, if Movietonia starts with low Prices Videotech will earn a $7 million , if Movietonia starts with high prices Videotech will earn a profit of $ 4 million