Scenario 17-4. Consider Two Cigarette Companies, PM Inc. and Brown Inc. If

question 321

Multiple Choice

Scenario 17-4.
Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies split the market and earn $50 million each. If they both advertise, they again split the market, but profits are lower by $10 million since each company must bear the cost of advertising. Yet if one company advertises while the other does not, the one that advertises attracts customers from the other. In this case, the company that advertises earns $60 million while the company that does not advertise earns only $30 million.
-Refer to Scenario 17-4. If these two companies collude and agree upon the best joint strategy,

• A) neither company will advertise.
• B) both companies will advertise.
• C) PM Inc. will advertise but Brown Inc. will not.
• D) Brown Ind. will advertise but PM Ind. will not.

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Definitions:

Alveolus

A tiny air sac in the lungs where the exchange of oxygen and carbon dioxide occurs.

Diaphragm

A large, dome-shaped muscle located at the base of the lungs and chest that plays a crucial role in breathing.

Bronchiole

Small airways in the lungs that lead from the bronchi to the alveoli, facilitating the movement of air in and out of the lungs.

Sheep Pluck

A dissected specimen consisting of the heart, lungs, and liver of a sheep, often used in biology studies.