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Suppose There Are Only Two Firms in an Industry

question 79

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Suppose there are only two firms in an industry. If they each set a high price, they each earn $5000. If they each set a low price, they each earn $2500. If one firm sets a low price while the other sets a high price, the low- price firm earns $7000 while the high- price firm earns $1000. Does a prisoners' dilemma exist?


Definitions:

Total Cost Function

An equation that shows the overall cost incurred by a firm in the production process, including both fixed and variable costs, as a function of the quantity of output produced.

Fixed Cost

Business expenses that remain constant regardless of the level of production or sales, such as rent, salaries, and insurance premiums.

Price Elastic

describes the responsiveness of the quantity demanded of a good to a change in its price.

Industry Supply

The total quantity of a product or service that is available for purchase in a specific industry at a given price and time.

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