Answer the Question Based on the Payoff Matrix for a Duopoly

question 214

Multiple Choice

Answer the question based on the payoff matrix for a duopoly in which the numbers indicate the profit from either opening a coffee shop in a small town or not opening the coffee shop. If the firms are playing a sequential game, then

• A)there is first-mover advantage.
• B)the firm with the first move will choose not to open a coffee shop.
• C)the firm with the first move will choose to open a coffee shop.
• D)both firms will choose not to open a coffee shop, regardless of which firm chooses first.

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Definitions:

Operating Leverage

The degree to which a company uses fixed operating costs, whereby a small change in sales significantly affects profitability.

Operating Leverage

A measure of how sensitive a company's operating income is to a change in its sales volume, emphasizing the impact of fixed costs.

EBIT

Earnings Before Interest and Taxes represents a metric for gauging a firm's profit, specifically excluding expenses related to interest and taxes.

Sales Revenue

The total amount of money generated from the sale of goods or services before any expenses are subtracted.