There Are Two Existing Firms in the Market for Computer

question 126

Multiple Choice

There are two existing firms in the market for computer chips.Firm A knows how to reduce the production costs for the chip and is considering whether to adopt the innovation or not.Innovation incurs a fixed setup cost of C,while increasing the revenue.However,once the new technology is adopted,another firm,B,can adopt it with a smaller setup cost of C/3.If A innovates and B does not,A earns $30 in revenue while B earns $10.If A innovates and B does likewise,both firms earn $20 in revenue.If neither firm innovates,both earn $10.Under what condition will firm A innovate?

• A) C > 30
• B) C < 30
• C) 10 > C > 0
• D) 35 > C > 25

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Definitions:

Binding Decision

A final and enforceable decision made by an authority such as a court or arbitrator, from which parties cannot deviate.

ADR Systems

Alternative Dispute Resolution systems are methods of resolving disputes without traditional litigation, including mediation and arbitration.

Formal Third-party Intervention

The involvement of an external, neutral party in a dispute or negotiation to help resolve differences or facilitate an agreement.

Surrender Control

The act of relinquishing authority, power, or management over something to someone else.