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

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Answer:

Joint profits are maximized when Carnival picks $260 and Royal Caribbean picks $260.

Step-by-step explanation:

Royal Caribbean

high price low price

$9,000 / $14,720 /

high price $9,000 $1,620

Carnival

low price $1,620 / $8,320 /

$14,720 $8,320

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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