Analysis of Investment Decisions in a Two-Firm Economy

In an economy with two firms, a self-reinforcing cycle of growth can occur if they act together. Arrange the following events to illustrate the correct sequence of this virtuous circle.

In a small, isolated economy consisting of only two firms—a clothing manufacturer and a food producer—both owners are considering whether to invest in new equipment and hire more workers. What specific action is most likely to trigger a 'virtuous circle,' leading to increased profits for both companies?

The Investment Dilemma in a Two-Firm Economy