(Answered) Question 2: Firms A and B are oligopolistic competitors setting prices. We will model theirdecision…

Question 2: Firms A and B are oligopolistic competitors setting prices.
We will model theirdecision making a simultaneous move game summarized by Table 1. Table 1: Simultaneous Move Payoffsa0<β<1. Thismeans that $1 of profit in the second round is worth βdollars to the firm deciding whatto do in the first round. Discount factors compound, so $1 of profit in the third round isworth β2 dollars to the firm in the first round. Discount factors capture the reality thatresources at a future date aren't as valuable as resources today. The firms could potentially form a tacit agreement where they both agree to play p=5every turn until something else besides p=5 is played. If someone besides p=5 is playedby either player, they then play p=1 every turn afterwards. This would result in thefollowing value for the firm: If uphold the agreement: 16+16β+16β2+16β3+dots If deviate from agreement: 21+1β+1β2+1β3+dots Total value of all payoffs if uphold the agreement: 16+16β+16β2+16β3+dots = 16+16β1-β Total value of all payoffs if deviate from agreement: 21+1β+1β2+1β3+dots = 21+β1-β What values of β will result in an equilibrium where both agree to the tacit agreementand play p=5 every turn?