Scenario: Suppose There Are Only Two Firms in an Industry

question 132

Multiple Choice

Scenario: Suppose there are only two firms in an industry, and their products are perfect substitutes for each other. Each firm had a fixed marginal cost of $5 and zero fixed cost of operation. The highest the consumers of this product are willing to pay for it is $10, and there are 200 consumers in this market.
-Refer to the scenario above.Suppose Firm 1 announces that it will charge $10 for its product.Then the optimal decision of Firm 2 will be to charge ________,and Firm 2 will then get ________ of the market share.

• A) $9.99; 100 percent
• B) $10; 50 percent
• C) $5; 100 percent
• D) $5; 50 percent

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Definitions:

Corporate Affairs

Activities and responsibilities related to the operation and management of a corporation, including compliance, governance, and public relations.

Limited Partner

One who invests in a limited partnership but does not play an active role in managing the business. Unlike general partners, limited partners are only liable for partnership debts up to the amounts they have invested.

Management Participation

Involvement or active engagement of management in the strategic and operational tasks of an organization or a particular project.

Voluntary Contract

An agreement entered into freely by parties who are capable of making their own choices and decisions, without coercion.