Consider the following payoff matrix. Firm 1 and Firm 2 are seeking to choose be
ID: 1167157 • Letter: C
Question
Consider the following payoff matrix. Firm 1 and Firm 2 are seeking to choose between Format A and Format B for their products. Which of the following statements best describes their profit-maximization? Format AFirm 2 Format B 0 A. Since there are network effects, Firm 1 would $4 Million $1 Million maximize its profit by producing format B and Firm 2 would maximize its profit by producing format A Since there are no network effects, the firms would maximize profits if they both produced format A O B. $4 Million $2 Million ° C. Since there are no network effects, Firm 1 would $2 Million $3 Million maximize its profit by producing format B and Firm 2 would maximize its profit by producing format A Since there are network effects, the firms would maximize profits if they both produced format A. D. $1 Million $3 MillionExplanation / Answer
"C"
The network effect is a situation where a firm makes more profit as more and more people start using that network. here, the question doesn't mention any such effect of the formats.
Both the firms are maximizing profit when they are producing at the point where firm A is producing Format B and Firm 2 is producing format A. The answer is "C"