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

question 80

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. $\begin{array}{c}\quad\quad\quad\quad\quad\quad\quad\text { Joe }\\\text { Sam }\begin{array}{|l|c|c|}\hline &\begin{array}{c}\text { Cut } \\\text { Price }\end{array} & \begin{array}{c}\text { Keep Old } \\\text { Price }\end{array} \\\hline \text { Cut } \\\text { Price } \\\hline \text { Keep Old } \\\text { Price } \\\hline\end{array}\end{array}$
Refer to the information given above.In this situation the Nash Equilibrium yields a:

• A) lower payoff than each would receive if each played his dominant strategy.
• B) higher payoff than each would receive if each played his dominant strategy.
• C) lower payoff than each would receive if each played his dominated strategy.
• D) the same payoff that each would receive if each played his dominated strategy.

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Definitions:

Unit Contribution Margin

The difference between the selling price per unit and the variable costs per unit, which contributes towards covering fixed costs and generating profit.

Cost Volume Profit Graph

A graphical representation that shows how changes in cost, volume, and profit affect a company's financial situation.

Break-Even Point

The point at which total costs and total revenue are equal, meaning there is no net loss or gain, and the business is not making a profit.

Total Revenue Line

A graphical representation showing how a company's total revenue changes with different levels of output or sales volume.