Wal-Mart and Target Are the Only Stores in a Remote

question 81

Multiple Choice

Wal-Mart and Target are the only stores in a remote town that currently stock and sell the PlayStation 5 video game console. Managers at both stores are simultaneously deciding whether to charge a price of $1,000 or $1,500 for each console. If both stores charge $1,000, they earn a profit of $100,000 each. If both stores charge $1,500, they earn a profit of $200,000 each. If one store charges $1,000 and the other store charges $1,500, the store that charges $1,000 earns a profit of $250,000 and the firm that charges $1,500 earns a profit of $50,000. If Wal-Mart and Target _________, they can both charge $1,500 and earn the highest combined profit available.

• A) collude with each other
• B) privately undercut each other after making an agreement
• C) engage in spirited price competition
• D) compete with each other only with regard to quantity and not price
• E) compete with each other only with regard to price and not quantity

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Definitions:

Maintenance Department

The division within a company responsible for maintaining equipment, buildings, and other assets to ensure operational efficiency.

Support Department

Units within an organization that provide essential services or support to the primary operations or production departments, but do not directly participate in profit generation.

Facility-Level Costs

are overhead costs that are not directly tied to production or volume, such as rent, insurance, and security for a factory.

Support Department

A division within an organization that provides essential services or support to production or primary operations departments.