Refer to the following formula for expected payoff: Expected payoff = [Probability of rival matching Loss from price cut] + [Probability of rival not matching x Gain from price cut] Suppose the payoff for each of four strategic interactions is as follows: Your Company's Action Reduce Price Don't Reduce Price Rival Response Reduce Price Loss = $800 Loss = $6,000 Don't Reduce Price Gain = $50,000 No Loss or Gain Instructions: Enter your responses as a whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. a. If the probability of rivals matching a price reduction is 98 percent, what is the expected payoff of a price cut? $ b. If the probability of rivals reducing price even though you don't is 5 percent, what is the expected payoff of not reducing price?

Refer to the following formula for expected payoff: Expected payoff = [Probability of rival matching Loss from price cut] + [Probability of rival not matching x Gain from price cut] Suppose the payoff for each of four strategic interactions is as follows: Your Company's Action Reduce Price Don't Reduce Price Rival Response Reduce Price Loss = $800 Loss = $6,000 Don't Reduce Price Gain = $50,000 No Loss or Gain Instructions: Enter your responses as a whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. a. If the probability of rivals matching a price reduction is 98 percent, what is the expected payoff of a price cut? $ b. If the probability of rivals reducing price even though you don't is 5 percent, what is the expected payoff of not reducing price?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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part ii-viii