PQ 18.02 (and 18.03) Two businesses in a market can decide to increase the amount of stores they operate. If neither business adds new stores they will each earn $10 million in profit; if both add new stores they will each earn $4 million in profit; and if one adds new stores while the other does not, the business adding new stores earns profit of $10 million and the other earns profit of $5 million. If these businesses are not colluding we would expect: Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a both may or may not add new stores. b one business will add new stores and the other will not. c both will add new stores. d neither will add new stores.
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- There is a Jexaco gas station right across the street from a Jalero station in Pennsylvania It is safe to assume that they compete locally for the same consumers and can observe the prices posted on each other's marquees. Demand for gasoline in this local market is Q = 80 − 6P, and both stations obtain gasoline from their supplier at $2.20 per gallon. On the day that both franchises opened for business, each owner was observed changing the price of gas advertised on its marquee more than 10 times; the owner of Jexaco lowered its price to slightly undercut Jalero's price, and the owner of Jalero lowered its price to beat Jexaco's. Since then, prices appear to have stabilized. Which of the oligopoly models is most suitable for explaining this behavior by these firms? Under current conditions, how many gallons of gasoline are sold in the market, and at what price? Would your answer differ if Jalero had service attendants available to fill consumers' tanks but Jexaco was only a…Q13 George and Jerry are competitors in a local market. Each is trying to decide if it is better to advertise on TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of €3,000. If they both advertise on radio, each will earn a profit of €5,000. If neither advertises at all, each will earn a profit of €10,000. If one advertises on TV and the other advertises on radio, then the one advertising on TV will earn €4,000 and the other will earn €2,000. If one advertises on TV and the other does not advertise, then the one advertising on TV will earn €8,000 and the other will earn €5,000. If one advertises on radio and the other does not advertise, then the one advertising on radio will earn €9,000 and the other will earn €6,000. If both follow their dominant strategy, then George will: (a) advertise on TV and earn €3,000; (b) advertise on radio and earn €5,000; (c) advertise on TV and earn €8,000; (d) not advertise and earn €10,000;[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…
- [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. (please explain how you calculate the payoff matrix)Suppose that in the market for milk, market share is divided among six companies in the following manner:Suppose two companies, Apples and Dell, are a competing duopoly. If both companies charge the high price, they each earn $700 million in economic profit. If both companies charge the low price, they each earn $500 million in economic profit. If one company charges a high price and the other a low price, the company charging the higher price earns $450 million in economic profit and the company charging the lower price earns $800 million in economic profit. 1. What is the Nash equilibrium? Select all possible answers from the answer list. 2. Thinking back to your answer for the Nash equilibrium, can firms do better than the outcome you identified? Explain.
- How would you solve for the Nash equilibrium total output, and total market profit? (see image))Profits for two competing firms depend on the decisions to advertise or not to advertise as follows: If neither firm advertises, each makes a weekly profit of $100. If one firm advertises while the other does not, the firm that advertises makes $120 while the firm that doesn’t advertise makes $60. If both firms advertise, each firm makes $80. (a) What is the Nash equilibrium? Is this outcome efficient, from the perspective of the two firms? (b) How does the outcome of the game change if the parties can make a binding agreement in advance about advertising practices? (c) How does the game change if it is repeated over the course of many weeks (but the firms cannot make a binding agreement about how much advertising they will do)?Exercise 6.1Suppose that two airlines decide to collude. Analyse the game between these two companies. Suppose that each of them can charge for tickets a high price or a low price. If one of them charges 100 euros, it gets few profits if the other also charges 100 euros and high profits if the other charges 200 euros. On the other hand, if the company charges 200 euros, it obtains very little profit if the other charges 100 euros and an average profit if the other also charges 200 euros. a) Represent the matrix of results of this game. b) What is the Nash equilibrium in this game? Explain your answer. c) Is there an outcome that would be better than the Nash equilibrium for the two airlines? How could it be achieved? Who would lose out if it were reached?
- Nash equilibrium can be defined as the competitive outcome where _____A. all firms set prices equal to average cost and all firms make economic profit.B. each firm sets a price equal to marginal cost and each firm makeseconomic profit.C. each firm sets a price higher than marginal cost and each firm makeseconomic profit.D. each firm sets a price lower than marginal cost and each firm makeseconomic profit.E. firms set a price lower than average cost and all firms make economic profit.In 1896, Colgate dental cream was introduced in tubes similar to those we use now. Today, the Colgate-Palmolive Company’s brand of toothpaste is the best-selling toothpaste in the world (ahead of the Crest brand marketed by Procter & Gamble, which was introduced in 1955). While Colgate and Crest enjoy the lion’s share of the toothpaste market, if you view the oral care shelf at your local drugstore or supermarket, you will find over a hundred different varieties of toothpaste. Colgate alone sells over 40 different varieties that are marketed under names ranging from Shrek Bubble Fruit to Colgate Total Advanced Whitening. The high level of product differentiation in the toothpaste market stems from firms introducing new varieties in an attempt to boost their economic profits. In environments where makers of other brands (such as Crest) can easily enter profitable segments of the market, a profitable strategy is to attempt to quickly cover that segment (introducing Shrek Bubble Fruit…In 1896, Colgate dental cream was introduced in tubes similar to those we use now. Today, the Colgate-Palmolive Company’s brand of toothpaste is the best-selling toothpaste in the world (ahead of the Crest brand marketed by Procter & Gamble, which was introduced in 1955). While Colgate and Crest enjoy the lion’s share of the toothpaste market, if you view the oral care shelf at your local drugstore or supermarket, you will find over a hundred different varieties of toothpaste. Colgate alone sells over 40 different varieties that are marketed under names ranging from Shrek Bubble Fruit to Colgate Total Advanced Whitening. The high level of product differentiation in the toothpaste market stems from firms introducing new varieties in an attempt to boost their economic profits. In environments where makers of other brands (such as Crest) can easily enter profitable segments of the market, a profitable strategy is to attempt to quickly cover that segment (introducing Shrek Bubble…