Kellogg's and General Mills Are Two of the Dominant Breakfast

question 72

Multiple Choice

Kellogg's and General Mills are two of the dominant breakfast cereal manufactures in the U.S. Each firm can either sign or not sign an exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box. If both companies sign an athlete, they will each make $5 million in economic profit. If only firm signs, they earn $8 million in economic profit and the other firm incurs an economic loss of $1 million. If neither firm signs, they break even. What are the strategies in this game?

• A) Do not sign exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box and make $8 million in profit.
• B) Sign an exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box and do not sign exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box.
• C) Sign an exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box and make $8 million in profit.
• D) Make $5 million or $8 million in profit.

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Definitions:

Bankers

are individuals or entities engaged in the business of dealing with money, lending, exchanging, and safeguarding funds.

Inflation

The rate at which the general level of prices for goods and services rises, eroding purchasing power over time.

Securities Act of 1933

is a U.S. law enacted to protect investors by requiring transparency in the financial statements of publicly traded companies.

Wall Street

A street in Lower Manhattan that is the original home of the New York Stock Exchange and represents the financial and investment community in the United States.