Suppose Two Companies, Macrosoft and Apricot, Are Considering Whether to Develop

question 42

Multiple Choice

Suppose two companies, Macrosoft and Apricot, are considering whether to develop a new product, a touch-screen t-shirt. The payoffs to each of developing a touch-screen t-shirt depend upon the actions of the other, as shown in the payoff matrix below (the payoffs are given in millions of dollars) . Suppose Apricot makes its decision first, and then Macrosoft makes its decision after seeing Apricot's choice. What will be the equilibrium outcome of this game?

• A)Apricot will develop a touch-screen t-shirt, and Macrosoft will not.
• B)Macrosoft will develop a touch-screen t-shirt, and Apricot will not.
• C)Both Apricot and Macrosoft will develop a touch-screen t-shirt.
• D)Neither Apricot nor Macrosoft will develop a touch-screen t-shirt.

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Definitions:

Marginal Revenue Curve

Represents the change in total revenue from selling one additional unit of a product or service.

Equilibrium Price

Equilibrium Price is the price at which the quantity of a good or service demanded equals the quantity supplied, resulting in market balance.

Equilibrium Quantity

The quantity of goods or services that is supplied and demanded at the equilibrium price, where demand equals supply.

Non-collusive Oligopolist

A firm in an oligopoly market structure that independently sets prices and output levels without secret agreements with competitors.