Suppose Firm a and Firm B Are Considering Whether to Invest

question 45

Multiple Choice

Suppose Firm A and Firm B are considering whether to invest in a new production technology. For each firm, the payoff to investing (given in thousands of dollars per day) depends upon whether the other firm invests, as shown in the payoff matrix below. Which of the following statements is correct?

• A) It cannot be determined whether Firm A has a dominated strategy.
• B) "Don't invest" is a dominated strategy for Firm A.
• C) Firm A does not have a dominated strategy.
• D) "Invest" is a dominated strategy for Firm A.

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Definitions:

Manufacturing

The process of converting raw materials or components into finished goods through the use of tools, human labor, and machinery.

Financial Accounting

The field of accounting that provides economic and financial information for investors, creditors, and other external users.

Raw Materials

Basic materials that are used in the production of goods, which have not yet been processed or manufactured.

Direct Materials

Raw materials that are directly incorporated into a finished product and are a significant portion of the product’s cost.