Suppose That Bill and Steve Are Duopolists in the Smartphone

question 108

Multiple Choice

Suppose that Bill and Steve are duopolists in the smartphone apps industry.At the beginning of the year, the two agree to work jointly as a monopoly, producing the monopoly level of output and the monopoly price for their apps.Halfway through the year each app firm is seriously considering breaking this agreement.Given these facts, what's likely to happen next?

• A)Both Bill and Steve realize that their best outcome is to maintain the agreement.
• B)Both Bill and Steve will break the agreement, the profits each of them will fall.
• C)Both Bill and Steve will break the agreement, and each sees an increase in profits.
• D)Both Bill and Steve will break the agreement, output of apps goes up and prices rise.

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Definitions:

Observational Learning

The method of learning that occurs through observing the behavior of others and the outcomes of those behaviors.

Classical Conditioning

An associative learning process where a neutral stimulus comes to elicit a response after being paired with a stimulus that naturally brings about that response.

Vicariously

Experiencing something through the actions or experiences of another person, rather than firsthand.

Reinforcing Outcomes

Consequences that increase the probability of a behavior being repeated by providing a reward or removing a negative stimulus.