This Figure Displays the Choices and Payoffs (Company Profits)of Two

question 65

Multiple Choice

This figure displays the choices and payoffs (company profits) of two music shops-MiiTunes and The Rock Shop.MiiTunes is an established business in the area deciding whether to charge its usual high prices or to charge very low prices,in the hopes that a new business will not be able to make a profit at such low prices.The Rock Shop is trying to decide whether or not it should enter the market and compete with MiiTunes.
According to the figure,if MiiTunes charges low prices,The Rock Shop should:

• A) enter the market and earn $4 million.
• B) enter the market and lose $2 million.
• C) not enter the market and earn $0.
• D) It cannot be determined what The Rock Shop will do.

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Definitions:

Normative Economic Reasoning

An approach in economics that reflects judgments about what the economy should be like or what particular policy actions should be recommended.

Financial Aid

Monetary assistance provided to individuals, typically students, to help cover the cost of education expenses.

Post Hoc Ergo Propter Hoc

A logical fallacy that assumes a causal relationship between two events simply because one event followed the other.

Causality

The relationship between cause and effect, often studied to understand how one variable or event influences another within various contexts.