Given the Payoff Matrix in Table 25

question 143

Multiple Choice

$$\begin{array}{l}\begin{array} { | l | l | l | } \hline & { \text { Company XYZ's Possible Responses } } \\\hline \text { Company ABC's Action } & \text { Charge High Prices } & \text { Charge Low Prices } \\\hline \text { Charge high prices } & \text { Profit gain loss } = \$ 0 & \text { Profit loss } = \$ 5,000 \\\hline \text { Charge low prices } & \text { Profit gain } = \$ 50,000 & \text { Profit loss } = \$ 500 \\\hline\end{array}\\\text { Table } 25.1\end{array}$$ Given the payoff matrix in Table 25.1, if the probability of rivals reducing their price even though you don't is 10 percent, what is the expected payoff for Company ABC not cutting prices?

• A) $0.
• B) $5.
• C) -$500.
• D) -$5,000.

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Definitions:

Allowance for Doubtful Accounts

A financial accounting provision estimating the portion of accounts receivable that may not be collectible.

Uncollectible

Refers to accounts receivable that are unlikely to be recovered and are therefore considered as bad debt.

Allowance Method

An accounting technique used to account for potential uncollectible receivables by estimating and recording bad debts expense ahead of specific account identifications.

Uncollectible Receivables

Receivables from sales or loans that are not expected to be collected, often written off as bad debts.