Refer to the Above Payoff Matrix

question 94

Multiple Choice

Refer to the above payoff matrix.Assume that firm B adopts a low-price strategy while firm A maintains a high-price strategy.Compared to the results from a high-price strategy for both firms,firm B will now:

• A) lose $75 million in profit and firm A will gain $50 million in profit.
• B) gain $50 million in profit and firm A will lose $50 million in profit.
• C) gain $75 million in profit and firm A will lose $50 million in profit.
• D) gain $50 million in profit and firm A will lose $75 million in profit. The high-price strategy results in $500 million profits for both.If B adopts a low-price strategy and A stays with the high-price strategy,B will gain and A will lose.

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Definitions:

Zero Economic Profits

A situation in perfect competition where firms earn just enough revenue to cover all their costs, including opportunity costs, indicating no supernormal profit above the normal rate of return.

Long-Run Equilibriums

A state in which all factors of production and market forces are balanced and economic variables are not expected to change.

Implicit And Explicit Costs

Implicit costs are the opportunity costs of using resources that a firm already owns, while explicit costs are direct payment outflows for purchasing productive resources.

Differentiated Products

Goods or services that are distinguished from one another by quality, features, branding, or other attributes that consumers may perceive as unique or valuable.