There Are Two Existing Firms in the Market for Computer

question 140

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/3.If A innovates and B does not,A earns $30 in revenue while B earns $10.If A innovates and B does likewise,both firms earn $20 in revenue.If neither firm innovates,both earn $10.Under what condition will firm B have an incentive to adopt if firm A adopts the innovation?

• A) C > 30
• B) C < 30
• C) 10 > C > 0
• D) 35 > C > 25

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Definitions:

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