CleanClothes Dry Cleaners Is Opening a Pick-Up and Delivery Service

question 57

Multiple Choice

CleanClothes dry cleaners is opening a pick-up and delivery service.There is only one other dry cleaner that currently offers this service.To advertise, CleanClothes is considering either newspaper ads or attaching flyers to the doors of many local homes.The payoff for each of CleanClothes' potential strategies is given in the table below.What strategy will the existing dry cleaners (Y) play?

• A)X₁
• B)X₂
• C)Y₁
• D)Y₂

---

Definitions:

Production Costs

The total expenses incurred in the process of creating and manufacturing a product.

Substitution Effect

The economic principle that as the price of a good increases, consumers will replace it with cheaper alternatives, whereas if the price decreases, the good will become more preferable.

Output Effect

The effect that changes in the price level have on production due to the incentive for producers to increase supply when the price is higher.

Profit-maximizing

The method a company uses to identify the pricing and production volume that maximizes profit.