Joe is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Joe cuts his price to $2.90 and Sam continues to charge $3, then Joe's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts his price to $2.90 and Joe continues to charge $3, then Sam's profit will be $1,350, and Joe's profit will be $500. If Sam and Joe both cut their price to $2.90, then they will each earn a profit of $900.For Sam, cutting his price to $2.90 per gallon is a:
A. revenue-maximizing strategy.
B. profit-maximizing strategy.
C. dominant strategy.
D. dominated strategy.
Answer: C
You might also like to view...
Which of the following statements is correct?
I. A drop in the foreign exchange value of the dollar would decrease aggregate demand II. A decrease in the amount of money in circulation would increase aggregate demand A) I only B) II only C) Both I and II D) Neither I nor II
Which of the following will not generally be true of a monopolistic competitor operating in the long run?
a. price greater than minimum average total cost b. price equal to average total cost c. marginal revenue equal to marginal cost d. positive economic profits
Proper inflation accounting is necessary to measure the size of the real deficit because
A. as a lender, the government gains from inflation. B. otherwise, the deficit is understated in inflationary times. C. the government is a borrower that pays back dollars of less real value in inflationary times. D. interest payments tend to fall in inflationary times.
Table 5.1National Income Accounts (dollar figures are in billions)Expenditures for consumer goods and services$4,565Exports$740Government purchases of goods and services$1,465Social Security taxes$510Net investment$225Indirect business taxes$520Imports$825Gross investment$865Corporate income taxes$185Personal income taxes$750Corporate retained earnings$45Net foreign factor income$20Government transfer payments to households$690Net interest payments to households$0On the basis of Table 5.1, gross domestic product is
A. $6,995 billion. B. $6,340 billion. C. $6,170 billion. D. $7,080 billion.