Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 13, Problem 11PAA
To determine
To explain: The strategy pursued as the in charge of pricing at the given firm.
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Two cigarette manufacturers repeatedly play the following simultaneous-move billboard advertising game. If both advertise, each earns profits of $0 million. If neither advertises, each earns profits of $10 million. If one advertises and the other does not, the firm that advertises earns $20 million and the other firm loses $1 million. If there is a 10 percent chance that the government will ban cigarette sales in any given year, can the firms “collude” by agreeing not to advertise?
Suppose you are the economic adviser of a company producing three brands of mobile phones; Nokia 10 , Samsung X and iPhone Z. Suppose further that, your company currently sells 120 units of iPhone Z at ¢800 per unit, 150 units of Samsung X at ¢800 per unit and 200 units of Nokia 10 at ¢100 per unit, but in a bid to maximize profit, the company’s managing director proposes an increase in price of Samsung X from ¢800 to ¢1000 per unit for which quantity demanded is anticipated to fall from 150 to 100 units; iPhone Z from ¢800 to ¢1200 per unit for which quantity demanded is anticipated to fall from 120 to 100 units; and Nokia 10 from¢100 to ¢200 per unit for which quantity demanded is expected to fall from 200 to 100 units.
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Suppose Toyota and Honda must decide whether to make a new breed of side-impact airbags standard equipment on all models. Side-impact airbags raise the price of each automobile by $1,000. If both firms make side-impact airbags standard equipment, each company will earn profits of $2.5 billion. If neither company adopts the side-impact airbag technology, each company will earn $1 billion (due to lost sales to other automakers). If one company adopts the technology as standard equipment and the other does not, the adopting company will earn a profit of $3 billion and the other company will lose $1.5 billion. If you were a decision maker at Honda, would you make side-impact airbags standard equipment? Explain.
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Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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