BestDeal.com and CrazySavings.com are two online retailers with free return policies. They sell the same brand of TV. The retailers' cost per TV is $1000. There are 100 buyers in the market. Each buyer has a perfectly inelastic demand for exactly one TV. Initially, each buyer pays for a TV from either website with equal probability. If the buyer finds out that the other website offers a strictly lower price, he/she will simply return the TV to the original website free of charge, and then buy a new one from the other website at the cheaper price. Let PBD be the price that BestDeal.com charges for the TV. Let pcs be the price at
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- . When Chinese automakers began exporting cars, rather thanfocusing on developed nations in the West, they shippedautos to emerging markets in countries such as Algeria, Russia,Chile, and South Africa. In these markets, even used vehiclesfrom multinational manufacturers are relatively scarce—andrelatively expensive. The Chinese automakers, who prioritizelow cost rather than design or even safety, applied a penetration-pricing strategy. A woman in Santiago, Chile, who boughta new Chery S21 explained, “The price factor is fairly decisive.I paid $5,500 new and full. Toyota with similar features costsaround $12,000.” Why do you think Chinese automakerschose that pricing strategy? Do you think it was successful?As Chinese regulators pressure these manufacturers to maketheir cars safer, do you think they will be able to keep theirprices low compared with those of the international automakers? Why or why not?26Youngstown-Warren Regional Airport (YNG) has had a difficult time securing passenger service from a commercial airline. a.) A few years ago, the Port Authority offered an incentive to United with guaranteed revenue equal to approximately $1.5 million, but United declined saying it was not sufficient. Suppose United anticipated that it would cost $1 million to offer flights from Youngstown, so with a guaranteed revenue of $1.5 million, their anticipated profit would equal $500,000. Given that they still chose to decline offering service from YNG, what do you know must be true? Put this in terms of implicit costs and economic profit. b.) In 2019, YNG’s only commercial carrier, Allegiant Air stopped offering service from YNG, despite the fact that it was known to be profitable. Allegiant Air’s service from YNG was known to be profitable. Why would Allegiant Air pull service from YNG even if it had been their service from YNG had been generating a profit? Note, Allegiant started…Consider the following ‘war of attrition’. Two animals are in a stand off for a prey. Theyindependently decide when to give up. Waiting is costly, but the animal giving up last winsthe prey (they each get nothing if they walk away at the exact same time). Getting the preygives a benefit of 80 while waiting costs 2 per unit of time. Formally payoffs are given asfollows:u1(t1, t2) =(−2t1 if t1 ≤ t280 − 2t2 if t1 > t2u2(t1, t2) =(80 − 2t1 if t1 < t2−2t2 if t1 ≥ t2,where ti is the amount of time animal i decided to wait. Assuming that animals aim tomaximize payoffs (consciously or not), figure out the Nash equilibria of this game by answeringthe following questions (similar to how we proceeded to solve the Bertrand game).(a) Show that there is no Nash equilibrium where both animals wait a strictly positiveamount of time. For this, consider two subcases: (i) both wait the same amount oftime, or (ii) one gives in earlier than the other.(b) Assume now that one animal, say the first one,…
- You are considering entry into a market in which there is currently only one producer (incumbent). If you enter, the incumbent can take one of two strategies, price low or price high. If he prices high, then you expect a $60K profit per year. If he prices low, then you expect $20K loss per year. You should enter if you believe demand is inelastic. you believe the probability that the incumbent will price low is greater than 0.75. you believe the probability that the incumbent will price low is less than 0.75. you believe the market size is growing.A clothing store and a jeweler are located side by side in a shopping mall. If the clothing store spend C dollars on advertising and the jeweler spends J dollars on advertising, then the profits of the clothing store will be (36 + J )C - 2C 2 and the profits of the jeweler will be (30 + C )J - 2J 2. The clothing store gets to choose its amount of advertising first, knowing that the jeweler will find out how much the clothing store advertised before deciding how much to spend. The amount spent by the clothing store will be Group of answer choices $17. $34. $51. $8.50. $25.50.Consider the following coordination game: Player 2P1 Comedy Show Concert Comedy Show 11,5 0,0 Concert 0,0 2,2 a. Find the Nash equilibrium(s) for this game.b. Now assume Player 1 and Player 2 have distributional preferences. Specifically, both people greatly care about the utility of the other person. In fact, they place equal weight on their outcome and the other person’soutcome, ρ = σ = ½. Find the Nash equilibrium(s) with these utilitarianpreferences.c. Now consider the case where Player1 and Player2 do not like each other. Specifically, any positive outcome for the other person is viewed as anegative outcome for the individual, ρ = σ = -1. Find the Nashequilibrium(s) with these envious preferences.
- ollowing is the payoff table for the Pittsburgh Development Corporation (PDC) Condominium Project. Amounts are in millions of dollars. State of Nature Decision Alternative Strong Demand S1 Weak Demand S2 Small complex, d1 8 7 Medium complex, d2 14 5 Large complex, d3 20 -9 Suppose PDC is optimistic about the potential for the luxury high-rise condominium complex and that this optimism leads to an initial subjective probability assessment of 0.8 that demand will be strong (S1) and a corresponding probability of 0.2 that demand will be weak (S2). Assume the decision alternative to build the large condominium complex was found to be optimal using the expected value approach. Also, a sensitivity analysis was conducted for the payoffs associated with this decision alternative. It was found that the large complex remained optimal as long as the payoff for the strong demand was greater than or equal to $17.5 million and as long as the payoff for…Which statements are true or false? S1: Multiple equilibria is a condition in which more than one equilibriumexists. S2: These equilibria sometimes may be ranked, in the sense that oneis preferred over another, but the unaided market will not move theeconomy to the preferred outcome.Suppose that the University of Alabama and Clemson are making spending decisions for theupcoming year. Assume that Alabama is currently spending $15 million on their recruiting andfacilities, and Clemson is spending $10 million. Each team has an additional $5 million to spendor keep as profits. If they both choose to not spend the additional $5 million then Alabama hasa 60% chance of getting the highest quality quarterback recruit to commit to them (getting thecommitment of the player is the goal). However, if they both choose to spend the additional $5million then there is a 57% chance that Alabama gets the high quality quarterback to commit. IfAlabama spends the additional $5 million but Clemson doesn’t then there is a 67% chanceAlabama gets the recruit. However, if Alabama does NOT spend the additional $5million butClemson does then there is a 50% change either team gets the recruit’s commitment. Setup thepayoff matrix and label the players, their strategies, and their payoffs, and…
- You're a contestant on a TV game show. In the final round of the game, if contestants answer a question correctly, they will increase their current winnings of $1 million to $3 million. If they are wrong, their prize is decreased to $750,000. You believe you have a 25% chance of answering the question correctly. Ignoring your current winnings, your expected payoff from playing the final round of the game show is [$ blank]. Given that this is positive [blank (positive/negative)], you should [blank (should/should not)] play the final round of the game. (Hint: Enter a negative sign if the expected payoff is negative.) The lowest probability of a correct guess that would make the guessing in the final round profitable (in expected value) is [blank]. (Hint: At what probability does playing the final round yield an expected value of zero?)A manager of a nightclub realizes that demand for drinks is more elastic among students and is trying to determine the optimal pricing schedule. Specifically, he estimates the following average demand for his customer types: Under 25: q^r=18-5pOver 25: q=10-2p The two age groups visit the nightclub in equal numbers on average. Assume that drinks cost the club $2 to make. A) suppose that once again it is impossible to identify which group the customers belong. Suppose the manager lowers the price of drinks to equal to marginal cost and still wanted to attract both customers, what entry fee would the manager set?A Las Vegas supermarket bakery must decide how many wedding cakes to prepare for the upcoming weekend. Cakes cost $33 each to make, and they sell for $60 each. Unsold cakes are reducedto half-price on Monday, and typically one-third of those are sold. Any that remain are donated toa nearby senior center. Analysis of recent demand resulted in the following table:Demand 0 1 2 3Probability .15 .35 .30 .20How many cakes should be prepared to maximize expected profit?a. Use the ratio method.b. Use the tabular method (see Table 13.3).