This figure displays the choices and payoffs (company profits) of two music shops-MiiTunes and The Rock Shop. MiiTunes is an established business in the area deciding whether to charge its usual high prices or to charge very low prices, in the hopes that a new business will not be able to make a profit at such low prices. The Rock Shop is trying to decide whether or not it should enter the market and compete with MiiTunes.Given the dominant strategy of MiiTunes according to the figure, we can predict that The Rock Shop:
A. Their actions cannot be predicted because they do not have a dominant strategy.
B. will enter and lose $2 million.
C. will enter and enjoy profits of $4 million.
D. will not enter and earn $0.
Answer: C
You might also like to view...
Monopolies can make an economic profit in the long run because of
A) rent seeking by competitors. B) the elastic demand for the monopoly's product. C) the cost-savings gained by the monopoly. D) barriers to enter the monopoly's market.
The kinked demand curve model best reflects
A) mutual interdependence among sellers. B) a game theory approach to price-output decisions. C) price rigidities in oligopolistic markets. D) All of the above
A decrease in the quantity of available resources would be represented by:
a. a steeper PPC. b. a point inside the PPC. c. an inward shift of the PPC. d. an upward movement along the PPC. e. a downward movement along the PPC.
If the marginal physical product of labor increases with the addition of new workers, it's because
a. labor specialization raises labor productivity b. the new workers are hired at lower wage rates c. the law of diminishing returns applies to new workers d. the supply curve of labor is upward sloping e. of the low productivity of capital