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QUESTION 31 Consider the following decision tree. This tree illustrates hypothetical payoffs to General Mills (GM) and Quaker Oats (Q) if they engage in a price war. If GM cuts prices and Quaker Oats follows this behavior GM,- $3 millionyear Q, $3 millionvyear Cut price Cut price No price cut GM, S10 millionyear O,- $2 millionvyear GM No price cut GM, - 5 millionvyear O, $5 millionyear GM loses $10 million. Quaker Oats loses $10 million. O GM loses $2 million. Quaker Oats loses $2 million. both firms gain $3 million.

QUESTION 31 Consider the following decision tree. This tree illustrates hypothetical payoffs to General Mills (GM) and Quaker Oats (Q) if they engage in a price war. If GM cuts prices and Quaker Oats follows this behavior GM,- $3 millionyear Q, $3 millionvyear Cut price Cut price No price cut GM, S10 millionyear O,- $2 millionvyear GM No price cut GM, - 5 millionvyear O, $5 millionyear GM loses $10 million. Quaker Oats loses $10 million. O GM loses $2 million. Quaker Oats loses $2 million. both firms gain $3 million.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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QUESTION 31 Consider the following decision tree. This tree illustrates hypothetical payoffs to General Mills (GM) and Quaker Oats (Q) if they engage in a price war. If GM cuts prices and Quaker Oats follows this behavior: GM, - $3 millionyear Q,- $3 milionyear Cut price Cut price No price cut GM, - S10 million year O,- $2 millionyear GM No price cut GM, $5 millionyear O,- $5 millionyear O GM loses $10 million. O Quaker Oats loses $10 million. O GM loses $2 million. O Quaker Oats loses $2 million, O both firms gain $3 million.
Transcribed Image Text:QUESTION 31 Consider the following decision tree. This tree illustrates hypothetical payoffs to General Mills (GM) and Quaker Oats (Q) if they engage in a price war. If GM cuts prices and Quaker Oats follows this behavior: GM, - $3 millionyear Q,- $3 milionyear Cut price Cut price No price cut GM, - S10 million year O,- $2 millionyear GM No price cut GM, $5 millionyear O,- $5 millionyear O GM loses $10 million. O Quaker Oats loses $10 million. O GM loses $2 million. O Quaker Oats loses $2 million, O both firms gain $3 million.
QUESTION 33 Second-price, sealed-bid auctions have rules that are incentive-compatible because: they encourage buyers and sellers to maximize profits. O they encourage buyers and sellers to collude to fix the results of the auction. they encourage individuals to reveal their true preferences. O individual bidders are encouraged to work with rivals to submit bids that maximize joint profits. each buyer is encouraged to submit the same bid.
Transcribed Image Text:QUESTION 33 Second-price, sealed-bid auctions have rules that are incentive-compatible because: they encourage buyers and sellers to maximize profits. O they encourage buyers and sellers to collude to fix the results of the auction. they encourage individuals to reveal their true preferences. O individual bidders are encouraged to work with rivals to submit bids that maximize joint profits. each buyer is encouraged to submit the same bid.
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