Question

A, B and C capitalist partners, contributed P10,000 each and D, the industrial partner contributed his services.

Suppose X, is the creditor of the firm to the amount of P90,000, after getting the P30,000 assets of the partnership
a. X can recover P20,000 each from A, B and C only
b. X can recover P60,000 from either A, B or C
c. X can recover P15,000 each from A, B, C and D
d. X can recover P15,000 each from A, B and C but D is exempt because he is an industrial.

Answer 1

Firm A's actions depend on whether it thinks Firm B will cheat or cooperate. If Firm B cheats, Firm A will also cheat. If Firm B cooperates, Firm A will take advantage of the opportunity to earn higher profits by raising output.

Step-by-step explanation:

Based on the given information, the question is about the ability of two firms to trust each other. In the situation of Firm A, there are two possible scenarios:

• If Firm A thinks that Firm B will cheat on their agreement and increase output, then Firm A will also increase output because the profit of $400 when both firms increase output is better than a profit of only $200 if Firm A keeps output low and Firm B raises output.
• If Firm A thinks that Firm B will cooperate by holding down output, then Firm A may seize the opportunity to earn higher profits by raising output. This is because if Firm B is going to hold down output, Firm A can earn $1,500 in profits by expanding output compared with only $1,000 by holding down output as well.