Suppose Two Firms Are Trying to Decide How Much to Budget

question 84

Multiple Choice

Suppose two firms are trying to decide how much to budget for research and development. Once a new discovery is made, each firm benefits regardless of which firm developed the innovation. In this R&D game of chicken, the Nash equilibrium will be that

• A) either both firms conduct the R&D or neither firm conducts the R&D.
• B) only one firm conducts the R&D but which firm conducts the R&D cannot be determined.
• C) both firms conduct the R&D.
• D) neither firm conducts the R&D.

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Definitions:

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to products or job orders, calculated before the costs are actually incurred.

Labor-Hour

A unit of measure representing one hour of work by an employee, often used in costing and budgeting processes.

Variable Overhead Efficiency Variance

The difference between the actual variable overhead incurred and the standard variable overhead allocated, based on the actual input of the allocation base.

Fixed Component

A cost that does not change with the increase or decrease in the amount of goods or services produced or sold.