(Scenario: Payoff Matrix for Airbus and Boeing) This Payoff Matrix

question 118

Multiple Choice

(Scenario: Payoff Matrix for Airbus and Boeing) This payoff matrix describes actions in developing so-called superjumbo jets that can carry 600 or more passengers. In each element, the lower-left value gives the outcome for Boeing based on the action of Airbus and the upper-right value gives the outcome for Airbus based on the action of Boeing. For example, in element A, each company will lose $10 million if they both decide to produce superjumbo jets.

Now suppose that the U.S. government decides to provide a $50 million subsidy to Boeing to encourage it to produce superjumbo jets. Boeing decides to take the subsidy. Using the payoff matrix, what is Airbus's best strategy?

• A) continue to produce superjumbo jets because its profits will not be affected
• B) continue to produce superjumbo jets even though its profits will fall
• C) discontinue producing superjumbo jets because its losses are lower than if it produced superjumbo jets
• D) discontinue producing superjumbo jets because it would neither lose nor earn more profits by producing superjumbo jets

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Definitions:

Price Range

The spectrum of prices at which a particular product is sold in the market, from the lowest to the highest.

Price Elasticity

The measure of how much the quantity demanded of a good responds to a change in the price of that good, indicating the sensitivity of consumers to price changes.

Substitutes

Products or services that can replace each other in use or consumption, thereby affecting consumer choices and market dynamics.

Product

An item or service that is created through a process and is offered for sale or use.