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. Under what condition will firm A innovate?
A. C < 30
B. 35 > C > 25
C. 10 > C > 0
D. C > 30
Answer: C
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A) a decrease; falling B) an increase; falling C) an increase; rising D) a decrease; rising
Which of the following is not true about utility? a. Utility varies from individual to individual
b. Marginal utility tends to decline, the more of a good or service is consumed. c. When marginal utility is at its maximum, total utility is zero. d. All of the above are true about utility.
Water, when it is not tradeable among current and potential users, is often kept that way
a. by governments demanding tight control over who gets the water. b. by nature, as water cannot be easily moved from place to place in large quantities. c. to protect fish and other wildlife, rather than for any other reason. d. by monopoly owners in the private sector.