The Accompanying Table Shows Two Firms in a Single-Stage Duopoly

question 15

Multiple Choice

The accompanying table shows two firms in a single-stage duopoly game. Each firm makes its decision without knowledge of the other firm's decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. If both firms were able to write a binding contract, this contract would specify that Bobbles.com agrees to produce _________ bobbleheads and Bobbles R' Us agrees to produce _________ bobbleheads. $\begin{array} { l }&\text { Bobbles } R^{\prime} \text { Us }\\\text {Bobbles.com }&\begin{array} { l }\quad\quad\text { Produce } 5,000 \text { bobbleheads }\quad\quad\text { Produce } 5,000 \text { bobbleheads }\\\begin{array} { l } \text { Produce} \\ \text { 5,000} \\ \text {bobbleheads } \\\\ \text { Produce} \\ \text { 7,000} \\ \text {bobbleheads } \\\end{array}\begin{array}{|l|l|}\hline \$76,000\quad\quad\quad&\$109,000\quad\quad\quad \\\\\$84,000&\$22,000\\\hline \$18,000&\$34,000\\\\\$105,000&\$24,000 \\\\\hline\end{array}\end{array}\end{array}$

• A) 5,000; 7,000
• B) 7,000; 5,000
• C) 7,000; 7,000
• D) 5,000; 5,000
• E) 12,000; 0

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Definitions:

Average Product

refers to the output per unit of input, calculated by dividing the total product by the quantity of input used to produce this product.

Marginal Product

The surplus production derived from enhancing a specific input by a single unit, keeping all else equal.

Δq/ΔL

The change in quantity produced per unit change in labor, often related to the marginal product of labor.

Marginal Product

The additional output generated by employing one more unit of a particular input, holding other inputs constant.