Table 17-22 Brian and Matt Own the Only Two Bicycle Repair Shops

question 239

Multiple Choice

Table 17-22
Brian and Matt own the only two bicycle repair shops in town. Each must choose between a low price for repair work and a high price. The annual economic profit from each strategy is indicated in the table. The profits are shown as (Matt, Brian) in each cell.
-Refer to Table 17-22. Which of the following statements is correct if Brian and Matt will play this game only once?

• A)The Nash equilibrium is the high price.
• B)A Nash equilibrium cannot be established unless Brian and Matt collude.
• C)A Nash equilibrium cannot be established without the players repeating the game.
• D)The Nash equilibrium price is the low price.

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Definitions:

Equivalent Units

A concept in cost accounting that converts partially completed units into a comparable number of fully completed units.

Conversion Costs

The sum of labor and overhead costs that are necessary to turn raw materials into finished products.

FIFO Method

First In, First Out; an inventory valuation method where the costs of the earliest goods purchased or produced are the first to be expensed.

Process Costing

A method of costing used for homogenous products, where it calculates the cost of each process or stage of production.