Suppose firm A convinces firm B that demand has decreased so to sell its 2,000 output they must decrease price from 8,000 to 7,500 per unit. Firm B must match its price, so they lower the price and incur a loss of 500 per unit. Firm A increases its output to 3,000 units. Industry output increases to 5,000 and the price falls.For the complier ATC now exceeds the price, for the cheat, the price exceeds ATC. The complier incurs an economic loss. The cheat increases its profit. One firm cheats on the collusive agreement, the industry output becomes larger than the monopoly output and the industry price is lower than the monopoly price. The total economic profit made by the industry is also smaller than the monopoly’s economic profit.Both Firms Cheat:If both firms cheat and increase their output to 3,000 units price lowers to 6,000 per unit. Industry output becomes 6,000 units, the price falls. The market operates at the point at which the market demand curve intersects the industry marginal cost curve. Each firm has lowered cost and increased output as much as it can without incurring an economic loss. Both firms then make zero economic profit—the same as in perfect competition. The Payoff Matrix: The strategies and payoffs are summarized in the form of the game’s payoff matrix.