Use the Following Setup

question 73

Multiple Choice

use the following setup
Consider a sequential game between a shopkeeper and a haggling customer.The party who moves first chooses either a high price ($50) or low price ($20) and the second mover either agrees to the price or walks away from the deal and neither party gets anything.Ignore costs and assume the customer values the item at $60.
-​Looking ahead at how the customer is more likely to react,what price should the shopkeeper charge?

• A)​High price
• B)Low price
• C)Offer the good for free
• D)​A compromised price between the high and the low price

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Definitions:

Charitable Contribution

Monetary or in-kind donations given to charitable organizations, often eligible for tax deductions.

Sunk Cost

Expenses that were previously incurred and cannot be reclaimed.

Opportunity Cost

The cost of foregoing the next best alternative when making a decision, essentially what is sacrificed when a particular choice is made.

Differential Cost

The variation in overall expenses incurred from choosing one option instead of another.