Principles Of Economics, Student Value Edition Plus Mylab Economics With Pearson Etext -- Access Card Package (12th Edition)
12th Edition
ISBN: 9780134419381
Author: CASE
Publisher: PEARSON
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Chapter 14, Problem 3.1P
To determine
Strategy minimizing potential losses.
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Suppose that Expresso and Beantown are the only two firms that sell coffee. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises:
Beantown
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Doesn't Advertise
Expresso
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8, 8
15, 2
Doesn't Advertise
2, 15
11, 11
For example, the upper right cell shows that if Expresso advertises and Beantown doesn't advertise, Expresso will make a profit of $15 million, and Beantown will make a profit of $2 million. Assume this is a simultaneous game and that Expresso and Beantown are both profit-maximizing firms.
If Expresso decides to advertise, it will earn a profit of
million if Beantown advertises and a profit of
million if Beantown does not advertise.
If Expresso decides not to advertise, it will earn a profit of
million if Beantown advertises and a profit of
million if Beantown does not advertise.
If Beantown advertises, Expresso makes a higher profit if…
Consider a situation where two firms, 1 and 2, compete by choosing prices simultaneously. They can either compete (charge a low price) or cooperate (collude, charging a high price). The firms play this competition game repeatedly and indefinitely, using a grim trigger strategy to incentivize cooperation. They use the same interest rate, i , to discount future payoffs. Payoffs are $4,050 when both firms cooperate and $3,600 when they compete. If one firm charge a low price while the other charges a high price, the firm charging the low price gets $7,200, and the other gets zero. Which of the following statements is correct?(a) For any i < 1/7 the firms will cooperate(b) For any i > 1/8 the firms will cooperate(c) For i = 1/9 the firms will be indifferent between cooperating or competing(d) There is no way to sustain cooperation in this scenario
Suppose that Creamland and Dairy King are the only two firms that sell ice cream. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises:
Dairy King
Advertise
Doesn’t Advertise
Creamland
Advertise
10, 10
18, 2
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2, 18
11, 11
For example, the upper right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $18 million, and Dairy King will make a profit of $2 million. Assume this is a simultaneous game and that Creamland and Dairy King are both profit-maximizing firms.
If Creamland decides to advertise, it will earn a profit of_____million if Dairy King advertises and a profit of______million if Dairy King does not advertise.
If Creamland decides not to advertise, it will earn a profit of_______million if Dairy King advertises and a profit of______million if Dairy King does not advertise.
If Dairy King…
Chapter 14 Solutions
Principles Of Economics, Student Value Edition Plus Mylab Economics With Pearson Etext -- Access Card Package (12th Edition)
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