Figure 12.1 Assume That Lexus (L)is the First Automobile Company to Produce

question 113

Multiple Choice

Figure 12.1

Assume that Lexus (L) is the first automobile company to produce a luxury class hybrid automobile and is the only such company for the past four years. BMW is now considering producing its own luxury hybrid automobile and Lexus must decide whether or not to lower the price of its luxury hybrid to counter BMW's entry into the luxury hybrid niche.
-Refer to Figure 12.1.If Lexus lowers its price, will this deter BMW from entering the market?

• A)Yes, because BMW stands to lose $100 million if it competes with Lexus.
• B)Yes, because BMW will make a smaller profit than Lexus if it chooses to compete.
• C)No, because BMW will still make a profit of $120 if it competes with Lexus.
• D)No, because BMW will be able to break Lexus' first mover advantage.

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Definitions:

Long-run Unemployment

A situation where the unemployment rate persists at a high level for a long period of time, often due to structural changes in the economy.

Bureau of Labor Statistics

A U.S. government agency responsible for collecting and reporting data on employment, labor market activity, working conditions, and price changes.

Average Workweek

The average number of hours worked per week by employees in a specific sector or economy.

Natural Rate

The long-term rate of unemployment around which the job market is in balance, where all those willing to work at prevailing wage rates can find employment.