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

See similar textbooks

Similar questions

Consider the following strategic interaction between two Australia telecommuncation companies deciding to set the prices of their ‘unlimited calls‘ mobile package.Try to explain the business reasons behind the relationships between the various payoffs. For example, why is Low the best response to the opponent playing High? Why is the payoff from (High,High) higher for both players than from (Medium, Medium)?
N: $30 V: $130 High price New firm N: $50 V: $100 Low price Advertise Verizon N: $60 V: $140 Do not advertise Expand High price New New firm firm Low price N: $70 V: $90 Do not N: $30 V: $170 The figure shown displays the choices that could be made by Verizon and a new firm in the industry. The payoffs are the profits (in millions) these companies will earn as a result of their choices. What will be the outcome of this game? Multiple Choice The new firm will expand; Verizon will advertise; the new firm will choose high prices. The new firm will expand; Verizon will advertise; the new firm will choose low prices. The new firm will expand; Verizon will not advertise; the new firm will choose high prices. The new firm will not expand. еxpand
Olivia is thinking about opening a new bakery (the entrant). There is already a bakery open in her neighborhood (the incumbent), and the owner of the incumbent bakery makes it clear that if Olivia enters the market, they will cut their prices in an attempt to drive the new bakery out of business. Based on the payoff matrix below, is the incumbent’s threat credible? That is, if Olivia opens a new bakery, will the incumbent actually lower their prices? Note: the entrant chooses the row, the incumbent chooses the column High price Low price Enter 1, 2 -1, 1 Don’t enter 0, 10 0, 1 a. Yes, the threat is credible b. No, the threat is not credible
Synergy and Dynaco are the only two firms in a specific high-tech industry. They face the following payoff matrix as they decide upon the size of their research budget: Dynaco's Decision Synergy's Decision Large Budget Large Budget $30 million, $20 million Small Budget $0, $30 million If Synergy believes Dynaco will go with a large budget, it will choose a budget. If Synergy believes Dynaco will go with a small budget, it will choose a budget. Therefore, Synergy a dominant strategy. O True Small Budget $70 million, $0 $50 million, $40 million If Dynaco believes Synergy will go with a large budget, it will choose a budget. If Dynaco believes Synergy will go with a small budget, it will choose a budget. Therefore, Dynaco a dominant strategy. O False True or False: There is a Nash equilibrium for this scenario. (Hint: Look closely at the definition of Nash equilibrium.)
Refer to the following payoff table: Firm A's Advertising Budget Low Multiple Choice Medium High A D G $900, $900 Low $1,000, $800 Firm A High; Firm B Low Firm A Low; Firm B Low Firm B's Advertising Budget Medium B E H $820, $1,220 $950, $1,025 с F 1 High $875, $920 $800, $875 $1,025, $1,175 Using the method of successive elimination of dominated strategies, which strategies, if any, are eliminated after the first round? $1,060, $1,100 $1,040, $1,000
AP CollegeBoard Test Booklet Unit 4 Problem Set Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate," you must show how you arrived at your final answer. Use the graph provided below to answer parts (a)-(e). Marginal Cost Average Total Cost Average Variable Cost 108 100 55 Demand 0 10 21 31 44 57 77 Quantity Marginal Revenue BigMed, a profit-maximizing firm, has a patent on a medical device, making it the only producer of that device. The graph above shows BigMed's demand, marginal revenue, average total cost, average variable cost, and marginal cost curves. (a) Calculate BigMed's total revenue if the firm produces the allocatively efficient quantity. Show your work. (b) Starting at a price of $100, if BigMed were to increase the price by 2%, will the quantity demanded decrease by more than 2%, by less…
Problem # 4 Idea Inc. is a small publishing company operating in the college and textbook market, which is one of the most profitable segments for book publishers. Idea Inc. has a cost of producing, handling, and shipping of about $30 for each additional book. The publisher’s overall marketing and promotion spending (set annually) accounts for an average cost of about $10 per book. Idea Inc.’s best-selling game theory text has a demand curve: P = 200 - Q, where Q denotes yearly sales (in thousands) of books. For this text Idea Inc. pays a $10 per book royalty to the author. a) Determine the profit-maximizing output and price for the game theory text. b) A rival publisher has raised the price of its best-selling game theory text by $20. One option is to exactly match this price hike and so exactly preserve your level of sales. Do you endorse this price increase? (Explain briefly why or why not.) c) To save significantly on fixed costs, Idea Inc. plans to contract out the actual printing…
2) Two firms, X and Y, are planning to market their new products. Each firm can develop either TV or Laptop. Market research indicates that the resulting profits to each firm for the alternative strategies are given by the following payoff matrix: FIRM Y TV LAPTOP FIRM X TV 30, 30 60, 35 LAPTOP 40,70 20, 20 A) If both firms make their decisions at the same time and follow maximin (low-risk) strategies, what will the outcome be? B) Suppose both firms try to maximize profits, but Firm X has a head start in planning, and can commit first. Now what will the outcome be? What will the outcome be if Firm Y has a head start in planning and can commit first? C) What is the cooperative outcome? D) Which firm benefits most from the cooperative outcome? How much would that firm need to offer the other?
part ii-viii