Table 17-28 Suppose That Two Firms Determine That Each Could Lower Its

question 476

Multiple Choice

Table 17-28
Suppose that two firms determine that each could lower its costs and increase its profits if both reduced their advertising budgets. But in order for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's product, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. The table below lists each firm's individual profits:
Firm A
Breaks agreement Maintains agreement
and advertises and does not advertise
-Refer to Table 17-28. Does either Firm A or Firm B have a dominant strategy?

• A)Firm A has a dominant strategy, but Firm B does not.
• B)Firm A does not have a dominant strategy, but Firm B does.
• C)Neither Firm A nor Firm B has a dominant strategy.
• D)Both Firm A and Firm B have a dominant strategy.

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Definitions:

Standard Activity

A benchmark or base level of activity used for planning, measuring, and controlling performance.

Quantity Standard

A preset benchmark that specifies the expected amount or number of units to be used or produced under normal conditions.

Variable Manufacturing Overhead

The portion of manufacturing overhead costs that varies with the level of production output, such as utility costs or indirect materials.

Labor Rate Variance

The difference between the actual hourly labor rate and the standard rate, multiplied by the number of hours worked during the period.