Refer to the Profits-Payoff Table for a Duopoly

question 117

Multiple Choice

Refer to the profits-payoff table for a duopoly. If initially firm X's price was $6 and Y's price was $5,

• A)X would find it profitable to cut its price, provided Y also cut its price.
• B)Y would find it profitable to cut its price, provided X also cut its price.
• C)Y would find it profitable to raise its price by $1, provided X would also raise its price by $1.
• D)both firms would profit by simultaneously lowering their prices by $1.

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Definitions:

Marginal Utility

The additional joy or advantage obtained from using one more unit of a good or service.

Diminishing

A principle that refers to a decrease or reduction in the effectiveness, value, or quantity of something over time or under certain conditions.

Additional Unit

An incremental quantity of a product or service, typically considered in the context of production or consumption.

Substitution Effect

The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods.