Use the Information Below to Answer the Following Questions

question 44

Multiple Choice

Use the information below to answer the following questions.
Fact 15.2.1
Two firms, FastNet and SmartCast are the only Internet providers in a city. They have identical costs and one firm's service is a perfect substitute for the other firm's service. The industry is a natural duopoly. FastNet and SmartCast decide to collude and agree to share the market equally.
-Refer to Fact 15.2.1. What is the result if both firms cheat on the agreement?

• A)Both firms make an economic profit that is less than if they had both complied with the agreement.
• B)Economic profit of both firms is maximized.
• C)Both firms are playing a game of chicken.
• D)Only one firm is playing a game of chicken.
• E)Market output decreases.

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Definitions:

Null Hypothesis

A hypothesis that suggests there is no statistical significance in a set of given observations, implying no effect or relationship.

Linear Relationship

A relationship between two variables where the change in one variable is directly proportional to the change in another variable.

Pearson Correlation

A statistical measure that calculates the strength and direction of a linear relationship between two quantitative variables.

Covariance

A measure that indicates the extent to which two variables change together; if the greater values of one variable mainly correspond with the greater values of the other variable, and the same holds for the lesser values.