Refer to the Normal-Form Game of Price Competition Shown Below

question 107

Multiple Choice

Refer to the normal-form game of price competition shown below. Firm A must decide whether or not to introduce a new product. If firm A introduces a new product, firm B must decide whether or not to clone the product. The payoff structure of the game is depicted in Figure 10-12. The subgame perfect Nash equilibrium to this game is:

• A) Firm A plays "Introduce"; firm B plays "Clone" if firm A plays "Introduce."
• B) Firm A plays "Do Not Introduce"; firm B plays "Clone" if firm A plays "Introduce."
• C) Firm A plays "Introduce"; firm B plays "Do Not Clone" if firm A plays "Introduce."
• D) Firm A plays "Do Not Introduce"; firm B plays "Do Not Clone" if firm A plays "Introduce."

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Definitions:

Comparative Advantage

An economic principle that states a country should produce and export goods for which it is more efficient at producing than other countries, and import goods that it is less efficient at producing.

Terms of Trade

The ratio of an index of a country's export prices to an index of its import prices, affecting the balance of trade.

Production Possibilities

The different combinations of goods and services that an economy can produce given its available resources and technology, typically represented by a curve.

International Trade

The exchange of goods and services between countries, allowing economies to grow by specializing in the production of goods they can produce most efficiently.