Firm 1 -Two Software Firms Have Developed an Identical New Software Application

question 26

Multiple Choice

Firm 1

-Two software firms have developed an identical new software application. They are debating whether to give the new application away for free and then sell add- ons, or sell the application at
$30 a copy. The payoff matrix is above and the payoffs are profits in millions of dollars. What is Firm 1's best strategy?

• A) Sell the application at $30 a copy regardless of what Firm 2 does.
• B) Give away the application only if Firm 2 sells the application.
• C) Give away the application only if Firm 2 gives away the application.
• D) Give away the application regardless of what Firm 2 does.

---

Definitions:

Raw Materials

Basic materials and substances used in the initial stages of production.

Budgeted Sales

Budgeted Sales are the projected amounts of sales revenue that a company expects to achieve during a specific period based on marketing and sales plans.

Selling Price

The amount of money charged for a product or service, or the sum the consumer must pay.

Credit Sales

Sales made on credit, where the payment is received after the service or good is delivered.