Joe is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Joe cuts his price to $2.90 and Sam continues to charge $3, then Joe's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts his price to $2.90 and Joe continues to charge $3, then Sam's profit will be $1,350, and Joe's profit will be $500. If Sam and Joe both cut their price to $2.90, then they will each earn a profit of $900. For Joe, keeping his price at $3 per gallon is a:
A)revenue-maximizing strategy.
B)dominant strategy.
C)dominated strategy.
D)profit-maximizing strategy.

Question

Quizplus · Accepted Answer

If Sam cuts his price, Joe is better off cutting his price, too. If Sam does not cut his price, Joe is still better off cutting his price. Keeping the price at $3 is dominated.

Joe Is the Owner of the 7-11 Mini Mart, Sam