Figure 14-1 Assume That Lexus (L)is the First Automobile Company to Produce

question 157

Multiple Choice

Figure 14-1

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 14-1.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:

General Tendency

An overall direction or inclination in behavior, thought, or attitude that is common across different contexts or situations.

Good Outcomes

Positive or desirable results or consequences of an action or situation.

Optimistic Explanatory Style

A tendency to explain positive events as having permanent causes, while attributing negative events to temporary causes.

Situational Factors

Environmental circumstances or conditions that can affect behavior and decision-making.