The Diagram Shows the Extensive Form Version of a Strategic

question 205

Multiple Choice

The diagram shows the extensive form version of a strategic game between the two nationally dominant coffee sellers, Corporate Coffee and Jumbo Java, both of whom are considering opening coffee shops in a new town. The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. Which of the following statements is true about this game?

• A)It would be a Stackelberg duopoly if both firms gained from entering the new market.
• B)It represents a Stackelberg duopoly.
• C)It would be a Stackelberg duopoly if Jumbo Java could prevent Corporate Coffee's entry into the market.
• D)It would be a Stackelberg duopoly if the two firms moved simultaneously.

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Definitions:

Opportunity Cost

The worth of the best alternative given up as a consequence of a decision made.

Utility

The subjective benefit or satisfaction a person expects from a choice or course of action.

Scarcity

The fundamental economic problem of having seemingly unlimited human wants in a world of limited resources, leading to the necessity of making choices.

Economizing Behavior

The practice of seeking to achieve maximum utility with limited resources, leading to optimal decision making.