There are two existing firms in the market for computer chips. Firm A knows how to reduce the production costs for the chip and is considering whether to adopt the innovation or not. Innovation incurs a fixed setup cost of C, while increasing the revenue. However, once the new technology is adopted, another firm, B, can adopt it with a smaller setup cost of C/2. If A innovates and B does not, A earns $20 in revenue while B earns $0. If A innovates and B does likewise, both firms earn $15 in revenue. If neither firm innovates, both earn $5. If C = 15, which is the perfect equilibrium of the game?
A. A innovates, B innovates.
B. Neither firm innovates.
C. A innovates, B does not.
D. None of the answers is correct.
Answer: B
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A. A profit-maximizing firm may produce any output level at which P < LRAC. B. Every firm produces at an output level at which MC = LRAC. C. There is no entry or exit from the industry. D. No firm earns an economic profit.
The general shape of the aggregate supply curve is
a. downward sloping. b. upward sloping. c. vertical. d. horizontal.
An import quota will raise the local price of a good, which will _____ consumer surplus and_____ producer surplus
a. decrease; increase b. increase; increase c. decrease; have no effect on d. have no effect on; increase
The extensors that move the leg, commonly known as the quadriceps, include the __________.
a. true b. false