Laurel and Janet Are Competitors in a Local Market and Each

question 521

Multiple Choice

Laurel and Janet are competitors in a local market and each is trying to decide if it is worthwhile to advertise. If both of them advertise, each will earn a profit of $5,000. If neither of them advertise, each will earn a profit of $10,000. If one advertises and the other doesn't, then the one who advertises will earn a profit of $12,000 and the other will earn $2,000. In this version of the prisoners' dilemma, if the game is played only once, Laurel should

• A)advertise, but if the game is to be repeated many times she should probably not advertise.
• B)advertise, and if the game is to be repeated many times she should still probably advertise.
• C)not advertise, but if the game is to be repeated many times she should probably advertise.
• D)not advertise, and if the game is to be repeated many times she should still not advertise.

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Definitions:

SUTA Tax

State Unemployment Tax Act tax, which employers pay to the state to fund unemployment benefits.

Income Tax Withholding

The process by which employers withhold a portion of employees' salaries or wages to pay directly to the government as an advance payment of income tax.

Payroll Tax Expense

Taxes that are incurred by an employer based on the wages and salaries paid to employees, including social security taxes, Medicare taxes, and unemployment taxes.

FICA Taxes

Federal taxes in the United States that fund Social Security and Medicare, required to be withheld from employees' paychecks.