A Furniture Store Is Offering Free Credit on Purchases Over

question 112

Multiple Choice

A furniture store is offering free credit on purchases over $1,000.You observe that a big-screen television can be purchased for nothing down and $4,000 due in one year.The store next door offers an identical television for $3,650 but does not offer credit terms.Which statement below best describes the "free" credit?

• A) The "free" credit costs about 8.75%.
• B) The "free" credit costs about 9.13%.
• C) The "free" credit costs about 9.59%.
• D) The "free" credit effectively costs zero%.

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Definitions:

Dominant-Strategy Equilibrium

A state in a strategic game where each player's best strategy is independent of the strategies chosen by other players, resulting in a stable outcome no matter what the others do.

Tacit Collusion

A form of collusion that occurs without explicit agreement, where firms indirectly coordinate actions by understanding mutual interests.

Overt Collusion

An explicit agreement among competitors to fix prices, allocate markets, or limit production, which is illegal in many jurisdictions.

Tacit Collusion

A form of collusion in which firms in a market coordinate their pricing or output strategies without explicit communication or agreement.