Refer to Figure 14-6 Use the decision tree to determine whether Pizza Hut should deter Domino's from entering the market for pasta salad. Assume that each firm must earn a 25% return on investment to break even. Explain Pizza Hut's decision process
What will be an ideal response?
If Pizza Hut charges $7.49 for its pasta salad, Domino's will enter the market because the rate of return represents an economic profit. If Pizza Hut charges $4.99, Domino's will not enter the market. By charging $4.99, Pizza Hut deters Domino's entry into the market and earns a return on investment of 30%, which is better than the return of 28% it would earn by charging the higher price and having Domino's enter the market.
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If the multiplier = 2.5, the MPS would be
A) 0.25. B) 0.4. C) 0.6. D) 0.75.
If the Fed pursues a strategy of targeting an interest rate when fluctuations in money demand are prevalent
A) fluctuations of nonborrowed reserves will be small. B) fluctuations of nonborrowed reserves will be large. C) the Fed will probably quickly abandon this policy, as it did in the 1960s. D) the Fed will probably quickly abandon this policy, as it did in the 1950s.
What are the short-run economic effects when U.S. firms substitute labor outside of the U.S. for labor inside the U.S.?
A) The demand curve for labor in the U.S. decreases, and the demand curve in the foreign country will increase. B) The demand curve for labor in the U.S. increases, and the demand curve in the foreign country will decrease. C) The demand curve for labor in the U.S. decreases, and the demand curve in the foreign country will decrease. D) The demand curve for labor in the U.S. increases, and the demand curve in the foreign country will increase.
Assume that foreign capital flows into a nation rise due to expected increases in stock market appreciation. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the real risk-free interest rate and net nonreserve international borrowing/lending balance in the context of the Three-Sector-Model? a. The real risk-free interest rate falls
and net nonreserve international borrowing/lending balance becomes more positive (or less negative). b. The real risk-free interest rate falls and net nonreserve international borrowing/lending balance becomes more negative (or less positive). c. The real risk-free interest rate rises and net nonreserve international borrowing/lending balance becomes more negative (or less positive). d. The real risk-free interest rate and net nonreserve international borrowing/lending balance remain the same. e. There is not enough information to determine what happens to these two macroeconomic variables.