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- Describe each of the following terms. Q.3.4 Short-run period Q.3.5 CollusionNutraSweet Aspartame is a low-calorie, high-intensity sweetener known by Monsanto’s brand name, NutraSweet. It was the key to the success of Diet Coke and Diet Pepsi in the 1980s. NutraSweet made billions of dollars, yielding very high profits. Such profits usually attract entry, but in this case entry was barred by a patent on the sweetener and because the process of creating the sweetener was expensive and difficult. Monsanto had a distinct capability—its monopoly. It had also created another strategic asset—the NutraSweet brand name as represented by its trademark ‘swirl.’ The problem was that Monsanto’s patent was about to expire. As a result, the Holland Sweetener Company began building an aspartame plant in Geleen, the Netherlands, to challenge Monsanto’s hold on the aspartame market. Holland Sweetener was a joint venture between the Japanese Tosoh Corporation and DSM (Dutch State Mines). What did Monsanto do? Why? What did Holland Sweetener do? Why?Suppose that firms in an industry have identicalcost structures and the industry is in long-runequilibrium. Explain how the profit motive couldlead to lower market prices.
- Two manufacturers, denoted 1 and 2, are competing for 100 identical customers. Each manufacturer chooses both the price and quality of its product, where each variable can take any nonnegative real number. Let pi and xi denote, respectively, the price and quality of manufacturer i’s product. The cost to manufacturer i of producing for one customer is 10 + 5xi. Note in this expression that the cost is higher when the quality is higher. If manufacturer i sells to qi customers, then its total cost is qi(10 + 5xi). Each customer buys from the manufacturer who offers the greatest value, where the value of buying from manufacturer i is 1,000 + xi - pi; higher quality and lower price mean more value. A manufacturer’s payoff is its profit, which equals qi(pi - 10 - 5xi). If one manufacturer offers higher value, then all 100 customers buy from it. If both manufacturers offer the same value, then 50 customers buy from manufacturer 1 and the other 50 from manufacturer 2. Find all symmetric Nash…The two major scooter companies in India, ABC and XYZ, are competing for a fixed market. If both manufacturers make major model changes in a year, then their percentage market share not change. Also, if they both do not make major model changes, their percentage market share remains constant. If ABC makes a major model change and XYZ does not, then ABC is able to take away a% of the market away from XYZ, and if XYZ makes a major model change ABC does not, XYZ is able to take away b% of the market away from ABC. Express this as a 2 x 2 game and solve for the optimal strategy for each of the companies.The princple-agent model xan explain non profit maximization in firms. Which of the following describves this model well? a. Managers, the agents, act irrationally or with bounded rationality. b. Shareholders, then principals act irrationally or with bounded rationality. c. There is asymmetric information between the shareholders (principals) and managers (agends) in terms of the managers' actions. d. Principles, interested in revenue maximization, force managers, their agents, to maximize revenue and growth. e. None of the above.
- While grading a final exam, an economics professordiscovers that two students have virtually identical answers.She is convinced the two cheated but cannot prove it. The professorspeaks with each student separately and offers the followingdeal: Sign a statement admitting to cheating. If both studentssign the statement, each will receive an “F” for the course. Ifonly one signs, he is allowed to withdraw from the course whilethe other student is expelled. If neither signs, both receive a “C”because the professor does not have sufficient evidence to provecheating.a. Draw the payoff matrix.b. Which outcome do you expect? Why?What is the likelihood that firms would enter the market in the short-run? Use COVID-19 as a market condition to elaborate the likelihood and further elaborate an exit strategy if one exists.(Collusive Duopoly Model) There are two firmsproducing widgets. It costs the first firm q1 dollars to produceq1 widgets and the second firm 0.5q2 2 dollars to produce q2widgets. If a total of q widgets are produced, consumerswill pay $200 q for each widget. If the two manufacturerswant to collude in an attempt to maximize the sum of theirprofits, how many widgets should each company produce?
- Many firms price discriminate across customers by offering differentiated products (e.g., premium and plain-wrap). For example, Starbucks offers premium coffee at its Starbucks stores and offers plain-wrap coffee at its Seattle’s Best facilities. Another example is branded versus store-brand canned food. The idea is to create a perceived difference in quality (based on advertising). However, in many cases the products are produced at the same facilities; the only real difference is packaging (which, although appears different, costs the same per unit). Let there be two types of customers: H and F. Let the Hs perceive a quality difference and demand the product that is designed to be perceived as high-quality; let the Fs demand the product intended to be perceived as fair quality. The market demand curve for the H consumers is characterized by PH = 10 - .25qH, where qH is the amount of the high-quality product purchased/sold measured in millions of units (i.e., qH = 1.2 is 1.2…Jan wants to buy a house, but her friend Kan is a much tougher negotiator. They devise a plan where Kan will tell the seller of the house that she is Jan’s agent and will make all the decisions with respect to any purchase of the house. They also agree that Kan actually will have no such authority and that Jan is the only one who will make any decisions relating to purchasing the house. They meet with the seller, and Kan says that she is Jan’s agent while Jan says nothing. Has an agency been created? Discuss in details the pros and cons of this case.Suppose a manufacturer and its retailer face the problem of double marginalization. If the manufacturer sets the wholesale price equal to its marginal cost c and in addition, requires the retailer to pay a fraction α (between 0 and 1) of its profit. 4.a Write down the retailer’s profit maximization problem. Will this practice solve the double marginalization problem? (That is, will this practice maximize their joint profit?) 4.b Suppose the retailer is required to pay a fraction of α of its sales (i.e., total revenue). Write down the retailer’s profit maximization problem. Will this practice solve the double marginalization problem?