Scenario 16-3 Consider Two Countries, Eudora and Inhabii, That Are Engaged in Engaged

question 142

Multiple Choice

Scenario 16-3
Consider two countries, Eudora and Inhabii, that are engaged in an arms race. Each country must decide whether to build new weapons or to disarm existing weapons. Each country prefers to have more arms than the other because a large arsenal gives it more influence in world affairs. But each country also prefers to live in a world safe from the other country's weapons. The following table shows the possible outcomes for each decision combination. The numbers in each cell represent the country's ranking of the outcome.

-Refer to Scenario 16-3.Suppose the two countries agreed to disarm existing weapons.In reality these two countries may have a hard time keeping this agreement due to which of the following reasons? (i) Even though Eudora has no incentive to cheat on the agreement,Inhabii has an incentive to cheat on the agreement.
(ii) Much like the prisoners' dilemma,both countries are better off reneging on the agreement and building new weapons.
(iii) Both countries want to increase their world power by building new weapons.

• A)(i) and (ii)
• B)(ii) and (iii)
• C)(i) and (iii)
• D)(i), (ii), and (iii)

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Definitions:

Break-Even Point

The point at which total revenues equal total costs, and the business is neither making a profit nor incurring a loss.

Fixed Costs

Expenses that do not change with the level of goods or services produced over the short term.

Sales Ratio

A metric that compares a particular figure or cost to the total sales, providing insight into various financial aspects of a business.

Variable Costs

Expenditures that fluctuate based on the volume of output or services provided by an enterprise.