13) Consider two single-malt whiskey distillers, Laphroaig and Knockando. If they advertise, they can both sellmore whiskey and increase their revenue. However, the cost of advertising more than offsets the increasedrevenue so that each distiller ends up with a lower profit than if they do not advertise. On the other hand, ifonly one advertises, that distiller increases its market share and also its profit.Construct a payoff matrix using the following hypothetical information: If neither distiller advertises, eachearns a profit of $35 million per year. If both advertise, each earns a profit of $20 million per year. If oneadvertises and the other does not, the distiller who advertises earns a profit of $50 million and the distiller whodoes not advertise earns a profit of $9 million.b. If Laphroaig wants to maximize profit, will it advertise? Briefly explain.If Knockando wants to maximize profit, will it advertise? Briefly explain.d. Is there a dominant strategy for each distiller? Briefly explain.a.C.

Game theory is the study of how individuals or organisations apply strategy to achieve an outcome…

Answered: 13) Consider two single-malt whiskey…

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: Oligopoly

Section: Chapter Questions

Problem 9PA

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4. You are the manager of a firm that produces products X and Y at zero cost. Youknow that different types of consumers value your two products differently, but you are unable toidentify these consumers individually at the time of the sale. In particular, you know there arethree types of consumers (100 of each type) with the following valuations for the two products: Consumer Type Product X Product Y1 $90 $ 602 $70 $1403 $40 $160 a. What are your profits if you charge $40 for product X and $60 for product Y?b. What are your profits if you charge $90 for product X and $160 for product Y?c. What are your profits if you charge $150 for a bundle containing one unit of product X andone unit of product Y?d. What are your profits if you charge $210 for a bundle containing one unit of X and one unit ofY, but also sell the…
Ugly Dolls Inc. (UD) is a firm in Mytown that sells its products on a market under monopolistic competition. The cost function of UD is represented by TC = 100+10Q. Lately, because of the UD is making a big amount of profit, some firms enter the market to compete. Assume that Mytown engages in free trade in the dolls markets with Yourtown, who also faces a market with monopolistic competition. Because of this we can expect that, (a) The numbers of firms operating in this market will not change. (b) At equilibrium the profit of firms will increase. (c) The quantity of types of dolls available to consumers will increase. (d) All the above answers are correct.
Question 1 (40 points) Consider a homogeneous duopoly market where two firms compete in prices. Demand is given by D 8-2p, where p is price. Marginal cost of production is 2. a)lf the individual capacity of both firms is 2, is there an equilibrium in pure strategies? If so, what are the equilibrium prices? If not, provide a proof. b) Consider then that a third firm enters the market and that all three firms have a capacity of 2. Does an equilibrium in pure strategies exist? If so, what are the equilibrium prices? If not, why not? c) Does you answer under b) change if the firms' capacities are respectively equal to 1, 2 and 3?.
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[The soft drink industry is dominated by two cola firms- DEW and HEW. The market is worth $8 billion. Each firm can decide whether to advertise or not, but advertising costs $2 billion to any firm undertaking it. Moreover, advertising will create only negligible new demand as the market is already saturated. So, for the purpose of this question, assume that the market remains at $8 billion regardless of advertising. If one firm advertises and the other does not, then the former captures the whole market. If both firms advertise, then DEW captures 60% of the market and HEW captures 40% of the market, but the advertising must be paid for. If neither firm advertises, then the market is again split 60:40, with 60% going to DEW and 40% to HEW.] [Draw the payoff matrix for this game where each player’s payoff is equal to the value of market it captures less the cost of advertisement. [Do any of the firms have dominant strategies? If so, what are they? Is there a dominant strategy…
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e) Suppose two companies in an industry advertise where the marginal benefit of advertising expenditure is 0. what this means is, if each company increased their advertising by $50 million, both would see their profits fall by $50 million but if they both cut their advertising by $50 million they would both see their profits go up by $50 million. However if one increased advertising by $50 million and the other decreased advertising $50 million, the firm increasing their advertising would increase their profits by $100 million and the firm cutting their advertising expenditure would see the profit decrease by $100 million. What is the optimal outcome? Does each firm have a dominant strategy? If so, will following their dominant strategy result in the optimal outcome?
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14. Aside from advertising, how can monopolisticallycompetitive firms increase demand for their products? 17. Would you expect the kinked demand curve to bemore extreme (like a right angle) or less extreme (like anormal demand curve) if each firm in the cartel producesa near-identical product like OPEC and petroleum?What if each firm produces a somewhat differentproduct? Explain your reasoning.

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