Answered: Little Kona is a small coffee company…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Exercise 6.3.
Little Kona is a small coffee company considering entering a market dominated by Big Brewer. The benefits of each of them depend on whether or not the first enters and whether the second sets a high or low price:

After analazing the graph, answer the following question:

Great Brew threatens Little Kona by telling her, "If you go in, we're going to set a low price, so the best thing you can do is not get in." Do you think Little Kona should believe the threat? Why yes or why not?

Little
Kona
High price
Entry Little Kona
gets €2 mill
Do Not
Little Kona
entre gets nothing
Big Brewer
BB gets
€3 mill
BB gets
€7 mill
Low price
Little Kona
loses €2 mill
Little Kona
gets nothing
BB gets
€1 mill
BB gets
€2 mill

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