-Suppose MCI and AT&T Can Each Charge Either 3¢ or 4¢

question 35

Multiple Choice

-Suppose MCI and AT&T can each charge either 3¢ or 4¢ a minute for a long distance call. The above table illustrates the payoffs, in millions of dollars, from each of the four possible outcomes that could occur in their duopoly setting. What must MCI's price be for AT&T to earn $500 million in profit?

• A)4¢ a minute
• B)3¢ a minute
• C)0¢ a minute
• D)either 4¢ or 3¢ a minute because AT&T earns $500 million in profit either way
• E)None of the above answers is correct because the payoff matrix shows that it is not possible for AT&T to earn $500 million in profit

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Definitions:

Segment Assets

Assets that are allocated to a company's operational segments or divisions for the purpose of financial reporting.

Price/Earnings Ratio

A valuation metric for a company that measures its current share price relative to its per-share earnings.

Preferred Dividends

Payments made to preferred shareholders, often at a fixed rate, that take precedence over dividends to common shareholders.

Common Dividends

Profits distributed to shareholders of common stock, reflecting the company's earnings and financial health.