There Are Two Existing Firms in the Market for Computer

question 86

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.If C = 12,which is the perfect equilibrium of the game?

• A) A innovates, B does not.
• B) A innovates, B innovates.
• C) Neither firm innovates.
• D) None of the preceding answers is correct.

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Definitions:

Total Job Cost

The cumulative costs of materials, labor, and overhead assigned to a specific job or project.

Machine-Hours

A measure of the amount of time machines are operating during the production process, often used for allocating costs.

Predetermined Overhead Rate

A calculated rate used to assign anticipated overhead costs to specific activities or products, based on a selected activity base such as labor hours or machine hours.

Job-Order Costing

An accounting method that assigns costs to specific production batches or jobs, used in situations where goods or services are distinctive.