There Are Two Existing Firms in the Market for Computer

question 35

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/2.If A innovates and B does not,A earns $20 in revenue while B earns $0.If A innovates and B does likewise,both firms earn $15 in revenue.If neither firm innovates,both earn $5.If C = 15,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.

---

Definitions:

Properties Dialog

A window in software applications that displays settings or characteristics of a file, program, or device.

Hard Drive

A non-volatile storage device that stores digitally encoded data on rapidly rotating platters with magnetic surfaces.

Brief Description

A concise summary or overview of a document, concept, or process, meant to provide essential information quickly.

Object

An object represents an instance of a class in programming, encapsulating data and behavior of the data structure.