7. The table below shows the annual profits of two UK paint manufacturers. At present they both charge £20.00 per litre for gloss paint. Their annual profits are shown in box A. The other boxes show the effects on their profits of one or the other, or both firms reducing their price to £16.00 per litre. £20.00 Fenton's price i. ii. £16.00 A B £20.00 £6m each Mellow's price £9m for Fenton £3m for Mellow C D £16.00 £3m for Fenton £9m for Mellow £4m each (a) Which of the two prices should Mellow charge if it assumes that Fenton will set its price at £20?. it assumes that Fenton will set its price at £16?. (b) Which of the two prices should Fenton charge if i. ii. it assumes that Mellow will set its price at £20?. it assumes that Mellow will set its price at £16?. (c) Why is this known as a dominant strategy game? £20.00/£16.00 £20.00/£16.00 .£20.00/£16.00 £20.00/£16.00 (d) Assume now that the 'game' between Fenton and Mellow has been played for some time with the result that they both learn a 'lesson' from it. What are they likely to do?

7. The table below shows the annual profits of two UK paint manufacturers. At present they both charge £20.00 per litre for gloss paint. Their annual profits are shown in box A. The other boxes show the effects on their profits of one or the other, or both firms reducing their price to £16.00 per litre. £20.00 Fenton's price i. ii. £16.00 A B £20.00 £6m each Mellow's price £9m for Fenton £3m for Mellow C D £16.00 £3m for Fenton £9m for Mellow £4m each (a) Which of the two prices should Mellow charge if it assumes that Fenton will set its price at £20?. it assumes that Fenton will set its price at £16?. (b) Which of the two prices should Fenton charge if i. ii. it assumes that Mellow will set its price at £20?. it assumes that Mellow will set its price at £16?. (c) Why is this known as a dominant strategy game? £20.00/£16.00 £20.00/£16.00 .£20.00/£16.00 £20.00/£16.00 (d) Assume now that the 'game' between Fenton and Mellow has been played for some time with the result that they both learn a 'lesson' from it. What are they likely to do?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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