Joe Is the Owner of the 7-11 Mini Mart,Sam Is

question 72

Multiple Choice

Joe is the owner of the 7-11 Mini Mart,Sam is the owner of the SuperAmerica Mini Mart and together they are the only gas stations in town.At the current price of $3 per gallon,both receive total revenues of $1,000.Joe is considering cutting his price to $2.90,which would increase his total revenue to $1,350 if Sam continues to charge $3.If Sam's price remains $3 after Joe cuts his price,Sam will collect $500 in revenues.If Sam cuts his price to $2.90,his total revenues would also rise to $1,350 if Joe continues to charge $3.Joe will collect $500 in revenues if he keeps his price at $3 while Sam lowers his to $2.90.Joe and Sam will receive $900 each in total revenue if they both lower their price to $2.90.You may find it easier to answer the following question if you fill in the payoff matrix below. $\begin{array}{c}\quad \quad \quad \quad \quad \quad \quad \text { Joe }\\\text { Sam }\begin{array}{|c|c|c|} \hline& \begin{array}{c}\text { Cut } \\\text { Price }\end{array} & \begin{array}{c}\text { Keep Old } \\\text { Price }\end{array} \\\hline \text { Cut } & & \\\text { Price } & & \\\hline \begin{array}{c}\text { Keep Old } \\\text { Price }\end{array} & & \\\hline\end{array}\end{array}$
Refer to the information given above.If both players choose their dominated strategy they will each earn _____ and if both players choose their dominant strategy they will each earn _____.

• A)$500;$1350
• B)$900;$1350
• C)$900;$1000
• D)$1000;$900

---

Definitions:

Prime Cost

The combined costs of direct materials and direct labor incurred to produce a product.

Direct Material

Raw materials that can be directly attributed to the production of specific goods or services, utilized in their creation.

Direct Labour Cost

A cost that can be directly attributed to the production of specific goods or services, such as wages paid to employees who physically produce a product.

Overhead Applied

The portion of indirect costs allocated to a specific product or department within a company, based on a predetermined overhead rate.