Scenario 8.1: Two Soft-Drink Firms, Fizzle & Sizzle, Operate on a River

question 36

Multiple Choice

Scenario 8.1:
Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly.
-Refer to the information in Scenario 8.1. If Fizzle and Sizzle sell the same output at the same price and are otherwise identical, Fizzle's profit will be:

• A) higher than Sizzle's by $500,000 yearly.
• B) higher than Sizzle's by just less than $500,000 yearly.
• C) zero in the long run, and Sizzle will be out of business.
• D) the same as Sizzle's because Fizzle must be assigned an implicit cost of $500,000 yearly for economic rent.
• E) the same as Sizzle's because Sizzle will move to a more advantageous location in order to compete.