mpany's profit depends on whether Little Kona ers and whether Big Brew sets a high price or a l ce: e a Enter Don't Enter High Price Kona makes $2 million Kona makes zero Big Brew Brew makes $3 million Brew makes $7 million Kona loses $1 million Low Price Kona makes zero Brew m. $1 mil Brew m- $2 mil
mpany's profit depends on whether Little Kona ers and whether Big Brew sets a high price or a l ce: e a Enter Don't Enter High Price Kona makes $2 million Kona makes zero Big Brew Brew makes $3 million Brew makes $7 million Kona loses $1 million Low Price Kona makes zero Brew m. $1 mil Brew m- $2 mil
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter14: Monopoly
Section: Chapter Questions
Problem 6PA
Related questions
Question
![9. Little Kona is a small coffee company that is consider-
ing entering a market dominated by Big Brew. Each
company's profit depends on whether Little Kona
enters and whether Big Brew sets a high price or a low
price:
Little
Kona
Enter
Don't
Enter
High Price
Kona makes
$2 million
Kona makes
zero
Big Brew
Brew makes
$3 million
Brew makes
$7 million
Kona loses
$1 million
Low Price
Kona makes
zero
Brew makes
$1 million
Brew makes
$2 million](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff263824c-fc98-4430-ae56-fb59b20ddb97%2Fd18cbaec-2d12-425c-bae0-186a3c7b1efb%2Fb80ueh_processed.jpeg&w=3840&q=75)
Transcribed Image Text:9. Little Kona is a small coffee company that is consider-
ing entering a market dominated by Big Brew. Each
company's profit depends on whether Little Kona
enters and whether Big Brew sets a high price or a low
price:
Little
Kona
Enter
Don't
Enter
High Price
Kona makes
$2 million
Kona makes
zero
Big Brew
Brew makes
$3 million
Brew makes
$7 million
Kona loses
$1 million
Low Price
Kona makes
zero
Brew makes
$1 million
Brew makes
$2 million
![a. Does either player in this game have a dominant
strategy?
b. Does your answer to part (a) help you figure out
what the other player should do? What is the Nash
equilibrium? Is there only one?
c. Big Brew threatens Little Kona by saying, "If you
enter, we're going to set a low price, so you had
better stay out." Do you think Little Kona should
believe the threat? Why or why not?
d. If the two firms could collude and agree on how
to split the total profits, what outcome would they
pick?
(solve only d)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff263824c-fc98-4430-ae56-fb59b20ddb97%2Fd18cbaec-2d12-425c-bae0-186a3c7b1efb%2F56njfwj_processed.jpeg&w=3840&q=75)
Transcribed Image Text:a. Does either player in this game have a dominant
strategy?
b. Does your answer to part (a) help you figure out
what the other player should do? What is the Nash
equilibrium? Is there only one?
c. Big Brew threatens Little Kona by saying, "If you
enter, we're going to set a low price, so you had
better stay out." Do you think Little Kona should
believe the threat? Why or why not?
d. If the two firms could collude and agree on how
to split the total profits, what outcome would they
pick?
(solve only d)
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