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Social ScienceYou are a pricing manager at Baker Company-a medium-sized firm that recentlyintroduced a newproduct into the market. Baker's only competitor is Argyle Inc.,which is significantly smaller than Baker. The managerment of Baker has decided topursue a short-term strategy of maximizing this quarter's revenues, and you are in-charge of formulating a strategy that will permit the firm to do so. After talking with anemployee who was recently hired from the Argyle Inc., you are confident that a)Argyle is constrained to charge $20 or $40 for its product, b) Argyle's goal is tomaximize this quarter's profit, and c) Argyle's relevant unit costs are identical toyours. You have been authorized to price the product at two possible levels ($15 or$25) and know that your relevant costs are $4 per unit. The marketing departmenthas provided the following information about the expected number of units sold (inmillions) this quarter at various prices to help you formulate your decision:Argyle'sQuantityBaker'sArgyle'sPayoutBaker'sBaker'sArgyle'sPriceQuantityPricepayout$15$20$15$40103$25$20$25$4012Baker and Argyle currently set prices at the same time.Determine Baker's optimal price (single shot game) by setting up the normalform game in the standard "square".Are there any dominant strategies? If so, explain how you determined them.Are there any Nash equilibriums? If so, what aredetermine there were or were not?they and how did youWhat is your decision? Defend it in your initial answer.Respond to one of your classmates by examining their solution. Provide acritical response that explains why they did or did not answer the problemcorrectly.$20
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You are a pricing manager at Baker Company-a medium-sized firm that recently introduced a new product into the market. Baker's only competitor is Argyle Inc., which is significantly smaller than Baker. The managerment of Baker has decided to pursue a short-term strategy of maximizing this quarter's revenues, and you are in- charge of formulating a strategy that will permit the firm to do so. After talking with an employee who was recently hired from the Argyle Inc., you are confident that a) Argyle is constrained to charge $20 or $40 for its product, b) Argyle's goal is to maximize this quarter's profit, and c) Argyle's relevant unit costs are identical to yours. You have been authorized to price the product at two possible levels ($15 or $25) and know that your relevant costs are $4 per unit. The marketing department has provided the following information about the expected number of units sold (in millions) this quarter at various prices to help you formulate your decision: Argyle's Quantity Baker's Argyle's Payout Baker's Baker's Argyle's Price Quantity Price payout $15 $20 $15 $40 10 3 $25 $20 $25 $40 12 Baker and Argyle currently set prices at the same time. Determine Baker's optimal price (single shot game) by setting up the normal form game in the standard "square". Are there any dominant strategies? If so, explain how you determined them. Are there any Nash equilibriums? If so, what are determine there were or were not? they and how did you What is your decision? Defend it in your initial answer. Respond to one of your classmates by examining their solution. Provide a critical response that explains why they did or did not answer the problem correctly. $20
Expert Answer
It is given that,
- There are two firms in the market – Baker and Argyle where Baker is a larger firm than Argyle.
- Both the firm aims at maximizing their individual profits; therefore, both of them charges different prices.
- Argyle charges – either $20 or $40 and Baker charges – either $15 or $25.
- Both firm faces identical cost of $4 per unit.
From the aforementioned given table, the pay-outs can be determined by taking the difference of total revenue earned and total cost incurred i.e. Price * quantity – Cost per unit * quantity.
Consider the Baker’s case –
- If price = $15, the quantity sold is either 8 or 10;
Thus,
When price = $15, quantity sold = 8, and Cost per unit = $4 then pay-out = $15*8 - $4*8 = $120-$32 = $88.
When price = $15, quantity sold = 10, and Cost per unit = $4 then pay-out = $15*10 - $4*10 = $150-$40 = $110.
- If price = $25, the q...
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