Figure 14-1 Assume That Lexus (L)is the First Automobile Company to Produce

question 157

Multiple Choice

Figure 14-1

Assume that Lexus (L) is the first automobile company to produce a luxury class hybrid automobile and is the only such company for the past four years. BMW is now considering producing its own luxury hybrid automobile and Lexus must decide whether or not to lower the price of its luxury hybrid to counter BMW's entry into the luxury hybrid niche.
-Refer to Figure 14-1.If Lexus lowers its price, will this deter BMW from entering the market?

• A)Yes, because BMW stands to lose $100 million if it competes with Lexus.
• B)Yes, because BMW will make a smaller profit than Lexus if it chooses to compete.
• C)No, because BMW will still make a profit of $120 if it competes with Lexus.
• D)No, because BMW will be able to break Lexus' first-mover advantage.

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Definitions:

Correlation Coefficient

A statistical measure that quantifies the degree to which two variables vary together.

Sample Coefficient

A numerical measure that describes some characteristic or aspect of a sample of data.

Sample Covariance

A measure of the degree to which two variables change together for a sample of a population, indicating their linear relationship.

Cov (x,y)

Represents the covariance between two variables \(x\) and \(y\), measuring how changes in one variable are associated with changes in another.