Barb and Sue Are Competitors in a Local Market

question 251

Multiple Choice

Barb and Sue are competitors in a local market.Each is trying to decide if it is better to advertise on TV,on radio,or not at all.If they both advertise on TV,each will earn a profit of $5,000.If they both advertise on radio,each will earn a profit of $7,000.If neither advertises at all,each will earn a profit of $10,000.If one advertises on TV and other advertises on radio,then the one advertising on TV will earn $8,000 and the other will earn $3,000.If one advertises on TV and the other does not advertise,then the one advertising on TV will earn $15,000 and the other will earn $2,000.If one advertises on radio and the other does not advertise,then the one advertising on radio will earn $12,000 and the other will earn $4,000.If both follow their dominant strategy,then Barb will

• A) advertise on TV and earn $5,000.
• B) advertise on radio and earn $7,000.
• C) not advertise at all and earn $10,000.
• D) None of the above is correct. Barb and Sue do not have dominant strategies.

---

Definitions:

Material Equivalent Units

A concept used in process costing that converts partially completed units into an equivalent number of fully completed units.

Finishing Department

The last phase in the manufacturing process where products are completed, polished, inspected, and prepared for sale or shipment.

First-In, First-Out

An inventory valuation method where the goods first purchased or produced are the first ones sold, assuming that older inventory is used up first.

Equivalent Units

A concept in cost accounting used to allocate costs to mass-produced items that are not identical, allowing for the calculation of per-unit costs at various stages of production.