Refer to Figure 14-1. Should Lexus lower its price in order to deter BMW's entry into the luxury hybrid automobile market?
A) Yes, it will drive BMW out of the market.
B) No, it should keep the same price and work to capitalize on its brand loyalty.
C) In terms of profit earned, it makes no difference whether Lexus lowers its price or not; in either case it will make 280 million profit if BMW enters.
D) No, because BMW will enter the market regardless of Lexus' decision about its price.
Question 2
Refer to Figure 17-3. Assume Panel B represents the labor supply curve. Which of the following statements about Panel B is true?
A) Panel B describes a situation in which the income effect dominates the substitution effect at every level of wages (segments i, ii, and iii).
B) Panel B describes a situation in which the income effect dominates the substitution effect at low wages (segment i) and a situation in which the substitution effect dominates the income effect at very high wages (segment iii).
C) Panel B describes a situation in which the income effect dominates the substitution effect at low wages (segment i) and again at very high wages (segment iii).
D) Panel B describes a situation in which the substitution effect dominates the income effect at low wages (segment i).
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