Use the Following to Answer Questions

question 128

Multiple Choice

Use the following to answer questions:
Figure: Payoff Matrix II for Blue Spring and Purple Rain
-(Figure: Payoff Matrix II for Blue Spring and Purple Rain) Payoff Matrix II for Blue Spring and Purple Rain describes two producers of bottled water. Suppose Blue Spring charges a high price and Purple Rain does the same. In the next period, Blue Spring charges a low price and Purple Rain incurs a loss. If Purple Rain responds with a tit-for-tat strategy, it will:

• A) always charge a low price-the same as its dominant strategy.
• B) make random changes in its price so that Blue Spring is left with no systematic strategy.
• C) charge a low price in the next period and thereafter charge the same price that Blue Spring charged in the previous period.
• D) always charge a high price.

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Definitions:

Fixed Costs

Expenses that do not change in total regardless of the level of production or sales activity, such as rent or salaries.

Variable Costs

Costs that vary directly with the level of production or sales volume.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.

Net Income

The total earnings of a company after subtracting all expenses, taxes, and costs.