Suppose Eckard Pharmacy is the only pharmacy in a particular market, but CVS Pharmacy is thinking about entering the market. Absent entry, Eckerd Pharmacy can maximize profits by producing a small quantity. However, by producing a large quantity, Eckerd Pharmacy can attempt to deter entry by reducing prices and, consequently, profits. Eckerd Pharmacy must choose how much to produce first and then CVS Pharmacy will choose whether to enter the industry. The strategies and comesponding profits for Eckerd (E) and CVS Pharmacy (C) are depicted in the decision tree to the right. What is the Nash equilibrium of the game? OA. Eckerd Pharmacy will choose the small quantity and CVS Pharmacy will not enter. OB. Eckerd Pharmacy will choose the large quantity and CVS Pharmacy will enter OC. Eckerd Pharmacy will choose the large quantity and CVS Pharmacy will not enter. OD. Eckerd Pharmacy will choose the small quantity and CVS Pharmacy will enter Small Quantity Large Quantity C С Enter Stay Out Enter Stay Out E: $45 C: $45 E: $80 C: 50 E: SO C-55 E: $66 C: 50 odo

Suppose Eckard Pharmacy is the only pharmacy in a particular market, but CVS Pharmacy is thinking about entering the market. Absent entry, Eckerd Pharmacy can maximize profits by producing a small quantity. However, by producing a large quantity, Eckerd Pharmacy can attempt to deter entry by reducing prices and, consequently, profits. Eckerd Pharmacy must choose how much to produce first and then CVS Pharmacy will choose whether to enter the industry. The strategies and comesponding profits for Eckerd (E) and CVS Pharmacy (C) are depicted in the decision tree to the right. What is the Nash equilibrium of the game? OA. Eckerd Pharmacy will choose the small quantity and CVS Pharmacy will not enter. OB. Eckerd Pharmacy will choose the large quantity and CVS Pharmacy will enter OC. Eckerd Pharmacy will choose the large quantity and CVS Pharmacy will not enter. OD. Eckerd Pharmacy will choose the small quantity and CVS Pharmacy will enter Small Quantity Large Quantity C С Enter Stay Out Enter Stay Out E: $45 C: $45 E: $80 C: 50 E: SO C-55 E: $66 C: 50 odo

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.3P

See similar textbooks

Similar questions

Firms J and K produce compact-disc players and compete againstone another. Each firm can develop either an economy player (E)or a deluxe player (D). According to the best available marketresearch, the firms’ resulting profits are given by the accompanyingpayoff table.a. The firms make their decision independently, and each is seeking itsown maximum profit. Is it possible to make a confident predictionconcerning their actions and the outcome? Explain.Firm KE DE 30, 55 50, 60 Firm JD 40, 75 25, 50b. Suppose that firm J has a lead in development and so can move first.What action should J take, and what will be K’s response?c. What will be the outcome if firm K can move first?
A small town is served by many perfectly competingsupermarkets, which have constant marginal cost. In the previous problem set you used a diagram to showthe (long-run) equilibrium price and quantity, the (non-existence of) the deadweight loss and the consumerand producer surpluses.a. Now suppose that the supermarkets combine to form one chain. Using a new diagram, show theequilibrium price and quantity. What is the deadweight loss in this case? Indicate the consumer andproducer surplus, how have they changed?b. Assume that the newly formed supermarkets chain can perfectly price discriminate (hint: it meansthey can charge each consumer the maximum price they he/she is willing to pay – think about ourexperiment in the lecture deriving the demand curve for your favourite singer’s tickets). How muchwill be sold and what will be the deadweight loss in this case? Discuss how policymakers approachthese sorts of situations, and why
The following graph depicts the costs incurred by a Local egg seller, Rahim. Rahim is faced with strong competitors who are selling exactly the same product. Use the graph to answer the following questions- Price/Cost per egg MC 12 ATC 8 MR3 AVC 6. MR2 MR1 Quantity 100 200 300 400 a)At what price will Rahim try to minimize loss by selling eggs in the market? b)At what price will there be a break-even point?
c. If George is very experienced and knows the reservation prices of each customer, how many portraits will he produce each day and how much economic profit will he earn? d. Assume George charges only 2 different prices. He know that customers with reservation prices above $30, will never use coupons and the customers with reservation prices below will always use coupons. What price should George charge for portraits and what discount should he offer on the coupon?
Suppose 2 gas stations must post their prices for regular gasoline at 6am each morning and cannot change their price during the day. Each gas station has a choice: charge a relatively “low” price or charge a relatively “high” price. The following shows their profit for the day of each gas station depending upon which price each gas station chooses: Gas Station B Low Price High Price Gas Station A Low Price $2000, $900 $500, $1500 High Price $1200, $1800 $300, $2100 Assume that this is a "one shot" game: Which strategy should Gas Station A choose? Is it a dominant strategy? Explain why or why not. Which strategy should Gas Station B choose? Is it a dominant strategy? Explain why or why not What is the outcome for each Gas Station? How much profits will each Gas Station earn? Explain. Does this game represent a prisoner’s dilemma situation? Why or why not? If the gas stations can talk the night before making their pricing decision and discuss their pricing…
during the energy crisis in the mid-1970s, a politician remarked , "Excesssively high profit do not indicate that the major oil companies are responsive to custmers. It means they are gouging public" how would you respond to this attack?
A small town is served by many competingsupermarkets, which have the same constantmarginal costs.a. Using a diagram of the market for groceries, showthe consumer surplus, producer surplus, and totalsurplus.b. Now suppose that the independent supermarketscombine into one chain. Using a new diagram,show the new consumer surplus, producer surplus,and total surplus. Relative to the competitivemarket, what is the transfer from consumers toproducers? What is the deadweight loss?
There is much evidence that large firms with considerable market power (firms such asmonopolies) may not maximize profits but may pursue quite different objectives such asgrowth or sales revenue maximization. What are the arguments put forward to defendmonopoly? Name any 5 Generally, the aim of a business is to maximize profit. Which point should a firm operateat in order to achieve maximum profit? By making use of a graph indicate clearly the pointat which a firm makes maximum profit and a point where a firm increase their output inorder to enhance profit as well as well as the points where they should reduce theirproduction if they want to enhance profit
9 of 15 Warwick Inc. produces in a monopolistically compettive market. Which of the following corectly explains howa fmin this market struchure would transition trom the short run to the long run? O The supemomal profits eamed by Warwick Inc in the short run will attract new firma into the market. This wil shit the market supply curve to the right, which will reduce the market price and the price faced by Warwick ine. The price wil keep falling until Average Revenue equals Average Cost and only normal profits are made. O The supermormal profits eamed by Warwick Inc. in the short run will attract new firms into he martet. This wil shit Warwick ine. demand curve to the left and t wit continue to shit left until Average Revenue equals Average Cost and only normal profits are made O The supemomal profits eamed by Wanwick Inc. in the short run will lead to the market demand aurve shifing to the right, which will raise the price fims can sell at and ts wil atract now frms into the market.…
Suppose that the market for e-readers is an oligopoly controlled by Amazon.com , Barnes and Noble,Sony, and Apple. Barnes and Noble is consideringincreasing its output. How would this affect themarket price? How would it affect the profits ofeach company?
How profound the impact of advertising is in Microeconomics? Also explain its benefits.
Sleek Sneakers Co. is one of many firms in the marketfor shoes.a. Assume that Sleek is currently earning short-runeconomic profit. On a correctly labeled diagram,show Sleek’s profit-maximizing output and price,as well as the area representing profit.b. What happens to Sleek’s price, output, and profitin the long run? Explain this change in words, andshow it on a new diagram.c. Suppose that over time consumers become morefocused on stylistic differences among shoe brands.How would this change in attitudes affect eachfirm’s price elasticity of demand? In the long run,how will this change in demand affect Sleek’s price,output, and profit?d. At the profit-maximizing price you identified inpart (c), is Sleek’s demand curve elastic or inelastic?Explain