This Figure Displays the Choices Being Made by Two Coffee

question 120

Multiple Choice

This figure displays the choices being made by two coffee shops: Starbucks and Dunkin Donuts.Both companies are trying to decide whether or not to expand in an area.The area can handle only one of them expanding,and whoever expands will cause the other to lose some business.If they both expand,the market will be saturated,and neither company will do well.The payoffs are the additional profits (or losses) they will earn.
According to the figure shown,if Dunkin Donuts expands,then Starbucks should:

• A) also expand their business.
• B) not expand.
• C) give an ultimatum.
• D) None of these statements is true.

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Definitions:

Stabilization Policy

Government policies aimed at stabilizing the economy by reducing fluctuations in the business cycle through fiscal and monetary measures.

Recession

A period of declining real incomes and rising unemployment.

Money Supply

The quantity of money available in the economy.

Government Expenditures

The total amount spent by the government for its operations, programs, and public services.