This figure displays the choices being made by two coffee shops: Starbucks and Dunkin Donuts. Both companies are trying to decide whether or not to expand in an area. The area can handle only one of them expanding, and whoever expands will cause the other to lose some business. If they both expand, the market will be saturated, and neither company will do well. The payoffs are the additional profits (or losses) they will earn.If the players in the figure shown act in their own self-interest, then we know that Dunkin Donuts will earn:
A. -$1 million.
B. $0 million.
C. -$2 million.
D. $2 million.
Answer: A
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Which of the following explains why a firm would be interested in knowing the price elasticity of demand for a good it sells?
A) The price elasticity of demand can be used to determine the impact of changes in income on quantity sold. B) Knowing the price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total profit. C) The price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total revenue. D) Knowing the price elasticity of demand allows the firm to determine how the cost of producing additional units of the good will change.
The greater the interest rate
A) the greater the present value of a sum to be received a year in the future. B) the greater the opportunity cost of another dollar of current consumption. C) the more a dollar invested today will be worth a year from now. D) the lower the discount rate.
The choice between hawk and dove positions depends on
a. the extent of cyclical unemployment at the time of the decision b. relative importance of short-run and long-run monetary considerations c. cooperation between Congress and the monetary authorities d. the frequency of negative supply shocks e. the Fed's relative concern for price and employment stability
An increase in market supply will increase price
Indicate whether the statement is true or false