Answered: 7.4. E.T. In the movie E.T., a trail of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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7.4

Transcribed Image Text:(b) Supp med capacity of 800k units per quarter. More- over, all of the demand unfulfilled by Ericsson is transferred to Nokia. How would the analysis change? (c) Suppose you work for Nokia. Your Chief Intelligence Officer (CIO) is unsure whether Ericsson is capacity constrained or not. How much would you value this piece of info? 7.4. E.T. In the movie E.T., a trail of Reese's Pieces, one of Hershey's chocolate brands, is used to lure the little alien out of the woods. As a result of the publicity created by this scene, sales of Reese's Pieces trebled, allowing Hershey to catch up with rival Mars. Universal Studio's original plan was to use a trail of Mars' M&Ms, but Mars turned down the offer. The makers of E.T. then turned to Hershey, who accepted the deal. Suppose that the publicity generated by having M&Ms included in the movie would increase Mars' profits by $800,000 and decrease Hershey's by $100,000. Sup- pose moreover that Hershey's increase in market share costs Mars a loss of $500,000. Finally, let b be the benefit for Hershey's from having its brand be the chosen one. Describe the above events as a game in extensive form. Determine the equilibrium as a function of b. If the equilibrium differs from the actual events, how do you think they can be reconciled? 7.5. E.T. (CONTINUATION). Return to Exercise 7.4. Suppose now that Mars does not know the value of b, believing that either b = $1,200,000 or b = $700,000, each with probability

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