MegaCable and Acme Are Competing for an Exclusive Contract to Provide

question 21

Multiple Choice

MegaCable and Acme are competing for an exclusive contract to provide the city of Dustin with cable television for the next year. The firm that wins the contract will earn an economic profit of $5 million. The contact will be awarded to the firm that spends the most on lobbying. If both firms spend the same amount on lobbying, then the winner will be determined by a coin flip, so each will have a 50 percent chance of winning.  
The socially optimal amount for each firm to spend on lobbying is ________.

• A)$0
• B)$2,500,000
• C)$5,000,000
• D)$10,000,000

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Definitions:

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