The Table Below Shows the Payoff (Profit) Matrix of Firm

question 66

Multiple Choice

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms) .Table 12.2

-Which of the following statements is true?

• A)In the case of positive externalities, a private market will produce too little of a good compared to the socially efficient level of output.
• B)In the case of positive externalities, a private market will produce too much of a good compared to the socially efficient level of output.
• C)Negative externalities occur when benefits accrue to individuals not directly involved in a transaction.
• D)Positive externalities occur when costs are imposed on individuals not directly involved in a transaction.
• E)In the case of negative externalities, a private market will produce too little of a good compared to the socially efficient level of output.

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Definitions:

Cost-Plus Approach

A pricing strategy where a fixed percentage is added to the total cost of producing a product or service to determine its selling price.

Markup Percentage

The percentage added to the cost price of goods to cover overhead and profit.

Total Cost

The sum of all costs associated with producing or acquiring goods and services, including direct and indirect expenses.

Cost-Plus Approach

A pricing strategy where a fixed percentage or a fixed amount is added to the cost of the product to determine its selling price.