Exhibit 7-1
-Refer to Exhibit 7-1. If it is somehow determined in the market that 5 units of the output should be produced, Firm A will produce 1 unit whereas Firm B will produce 4 because
A)neither firm knows what the other's costs are, making it impossible for them to coordinate their activities properly.
B)Firm B will undercut Firm A's price, willingly sacrificing short-term profit to eliminate the competition.
C)market planners will examine the data and conclude that it is efficient for the firms to share production in this way.
D)Firm A will not have as good a reputation as Firm B, which has been in business longer.
E)Firm A will not be able to produce a second unit and sell it at a lower price than Firm B is willing to do.

Question

Exhibit 7-1 
-Refer to Exhibit 7-1. If it is somehow determined in the market that 5 units of the output should be produced, Firm A will produce 1 unit whereas Firm B will produce 4 because
A)neither firm knows what the other's costs are, making it impossible for them to coordinate their activities properly. 
B)Firm B will undercut Firm A's price, willingly sacrificing short-term profit to eliminate the competition. 
C)market planners will examine the data and conclude that it is efficient for the firms to share production in this way. 
D)Firm A will not have as good a reputation as Firm B, which has been in business longer. 
E)Firm A will not be able to produce a second unit and sell it at a lower price than Firm B is willing to do.

Quizplus · Accepted Answer

Firm A's inability to produce and sell a second unit at a lower price than Firm B is willing to accept indicates that Firm B has a cost advantage or a willingness to accept lower prices for additional units, leading to the distribution of production where Firm A produces 1 unit and Firm B produces 4.

Exhibit 7-1 -Refer to Exhibit 7-1. If It Is Somehow Determined in Somehow