Exhibit 10-7 Two-Firm Payoff Matrix

Multiple Choice

Exhibit 10-7 Two-Firm Payoff Matrix
-Suppose costs are identical for the two firms in Exhibit 10-7. Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price. Under these "tit-for-tat" conditions, equilibrium will be established by:

A) Camel charging the high price and Marlboro charging the high price.
B) Camel charging the high price and Marlboro charging the low price.
C) Camel charging the low price and Marlboro charging the low price.
D) Camel charging the low price and Marlboro charging the high price.