Exhibit 9-4 Two-Firm Payoff Matrix

question 146

Multiple Choice

Exhibit 9-4 Two-Firm Payoff Matrix

-Suppose costs are identical for the two firms in Exhibit 9-4.Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price.Under these "tit-for-tat" conditions,equilibrium will be established by:

• A) Beta Co. charging $1,000 and Alpha Co. charging $1,000.
• B) Beta Co. charging $1,000 and Alpha Co. charging $500.
• C) Beta Co. charging $500 and Alpha Co. charging $500.
• D) Beta Co. charging $500 and Alpha Co. charging $1,000.

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Definitions:

Depreciation

The process of allocating the cost of a tangible asset over its useful life.

Payback Period

The length of time it takes for an investment to generate enough cash flow to recover its initial outlay.

Payback Period

The amount of time it takes for an investment to generate enough cash flows to recover its initial cost.

Income From Operations

Earnings generated from a company's normal business activities, excluding revenues and expenses from non-operating activities.