Which of statement is true about economic profit in the long run.(LO2,3). a) both the monopolistic and perfect competitor make one. b) neither the monopolistic nor the perfect competitor makes one. c) only the perfect competitor makes one. d) only the monopolistic makes one.
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Which of statement is true about economic profit in the long run.(LO2,3).
a) both the monopolistic and perfect competitor make one.
b) neither the monopolistic nor the perfect competitor makes one.
c) only the perfect competitor makes one.
d) only the monopolistic makes one.
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- You are the manager of a firm that manufactures front and rear windshields for the automobile industry. Due to economies of scale in the industry, entry by new firms is not profitable. Toyota has asked your company and your only rival to simultaneously submit a price quote for supplying 100,000 front and rear windshields for its new Highlander. If both you and your rival submit a low price, each firm supplies 50,000 front and rear windshields and earns a $1 million in profits. If one firm quotes a low price and the other a high price, the low-price firm supplies 100,000 front and rear windshields and earns a profit of $11 million and the high-price firm supplies no windshields and loses $2 million. If both firms quote a high price, each firm supplies 50,000 front and rear windshields and earns a $6 million profit. The new Highlander is a “special edition” that will be sold only for one year. a. Supported by this information, complete the payoff matrix. (values are in million)…Boulder has several ski and snowboard retailers that sell similar brands. Prices across these retails are relatively stable during preseason (ski/snowboard season) and midseason, but become volatile postseason. For the past few years, when one retailer slashed prices (especially postseason), other retailers followed suit. All retailers behave as oligopolists. Suppose that retailer A faces an inverse demand of p = 1,500 – 1.5Q, when the other retailers match retailer A’s price changes, and p=1200 – 0.7Q, when the other retailers don't match retailer A’s price changes. Suppose also that retailer A's cost function is C(Q) = 20,000 + 10Q + 0.8Q2. Question: Under these conditions, what is the most profit retailer A can make?Suppose that two mining companies, Australian Minerals Company (AMC) and South African Mines, Inc. (SAMI), control the only sources of a rare mineral used in making certain electronic components. The companies have agreed to form a cartel to set the (profit-maximizing) price of the mineral. Each company must decide whether to abide by the agreement (i.e., not offer secret price cuts to customers) or not abide (i.e., offer secret price cuts to customers). If both companies abide by the agreement, AMC will earn an annual profit of $36 million and SAMI will earn an annual profit of $24 million from sales of the mineral. If AMC does not abide and SAMI abides by the agreement, then AMC earns $48 million and SAMI earns $6 million. If SAMI does not abide and AMC abides by the agreement, then AMC earns $12 million and SAMI earns $36 million. If both companies do not abide by the agreement, then AMC earns $18 million and SAMI earns $12 million. Complete the following payoff matrix using the…
- Santa Monica’s government has grown tired of the clutter of vehicles caused by the large number of companies and has decided to give licenses to only two companies to operate within city limits. Luckily for you, Whylz was selected as one of the companies along with their competitor SCUTE. The chief economic officer at SCUTE has scheduled a call to discuss raising your prices in tandem. You know that if both Whylz and SCUTE raise their prices together, both companies’ profits will increase. However, you know that if SCUTE back out of the price increase, Whylz profit will decline, while SCUTE’s profits will increase. Similarly, if Whylz refuses to raise prices while SCUTE does, your firm will capture a larger share of the market and increase profits while SCUTE will lose profit. Should Whylz raise its price? Is there a Nash Equilibrium strategy? If so, is the Nash Equilibrium strategy the best outcome for your company? Is it the best outcome for both companies? Explain your answer.…Your firm competes against another firm for customers. You and your rival know your products will be obsolete at the end of the year and must simultaneously determine whether or not to advertise. In your industry, advertising does not increase total industry demand but instead induces consumers to switch among the products of different firms. Thus, if both you and your rival advertise, the two advertising campaigns will simply offset each other, and you will each earn P5 million in profits. If neither of you advertises, you will each earn P10 million in profits. However, if one of you advertises and the other one does not, the firm that advertises will earn P20 million and the firm that does not advertise will earn P1 million in profits. Is your profit-maximizing choice to advertise or not to advertise? How much money do you expect to earn? a. Construct the payoff-matrix listing the profit they will earn if they advertise or not. b. Determine the (Nash) equilibrium (or equilibria) of…Two men’s clothing stores that compete for most of the market in a small town in Ohio and will choose their weekly advertising levels sequentially. The newspaper advertising department calls the clothing stores in alphabetical order to find out how much advertising each firm wishes to buy. Somehow — and nobody at the newspaper knows exactly how this happens — Arbuckle’s advertising decision “leaks out” to Mr. B’s, which then knows Arbuckle’s advertising decision when it makes its advertising decision for the week. The following payoff table facing the two firms, Arbuckle & Son and Mr. B’s, shows the weekly profit outcomes for the various advertising decision combinations. The payoff table is common knowledge. Use this payoff table to construct the appropriate sequential decision on the blank game tree provided below. If the manager at Arbuckle and Son employs the roll-back method to make the advertising decision for Arbuckle, the likely outcome will be: Multiple Choice $5,000 of…
- You are a profit-maximizing firm. Suppose there are two types of customers (50% of 1 type, 50% of the other) who shop in your specialty clothing store. Consumers of type R will pay __B= $80__ for a coat and __C= $ 60__ for pants. Consumers of type S will pay __D= $60__ for a coat and __E= $ 75__ for pants. Your firm faces no competition and but it does pay for the clothing, __F=$30__ per coat and __G= $ 50__ per pair of pants, i.e. MCcoat = __F= $30__ and MCpants= __G= $ 50__. You can’t price discriminate. You offer the same prices to all your customers.Answer True or False and then show or explain how you reached your conclusion.: Profits in Part (B) with bundling are higher than in Part (A) of this problem.Answer: ________________Question 4 [The soft drink industry is dominated by TCCC and PSC. The market is worth $6 billion. Each firm can decide whether to advertise, but advertising costs $1 billion to any firm undertaking it. Moreover, advertising will create only negligible new demand as the market is already saturated. So, for the purpose of this question, assume that the market remains at $6 billion regardless of advertising. If one firm advertises and the other does not, then the former captures the whole market. If both firms advertise, then TCCC captures 60% of the market and PSC captures 40% of the market, but the advertising must be paid for. If neither firm advertises, then the market is again split 60:40, with 60% going to TCCC and 40% to PSC.] a) [Draw the payoff matrix for this game where each player's payoff is equal to the value of market it captures less the cost of advertisement] Pay-offs are calculated correctly and presented well in a tabular format. b) [Do any of the firms have dominant…Please help with these two: 1. Consider a Duopoly model, in which two firms decide a quantity simultaneously. If they collude (setting the total quantity together), then each firm can earn (higher, or lower) profit than in the Cournot equilibrium. 2. Consider a collusion with two firms. The joint profit is maximized by setting quantity and price together. Each firm sells the agreed amount. However, believing that the other firm sells the agreed amount, there is always a temptation for the firm sell (more, or less) than the agreed amount.
- You are a pricing manager at Argyle Inc.—a medium-sized firm that recently introduced a new product into the market. Argyle’s only competitor is Baker Company, which is significantly smaller than Argyle. The management of Argyle has decided to pursue a short-term strategy of maximizing this quarter’s revenues, and you are in charge of formulating a strategy that will permit the firm to do so. After talking with an employee who was recently hired from the Baker Company, you are confident that:(a) Baker is constrained to charge $10 or $20 for its product,(b) Baker’s goal is to maximize this quarter’s profits, and(c) Baker’s relevant unit costs are identical to yours.You have been authorized to price the product at two possible levels ($5 or $10) and know that your relevant costs are $2 per unit. The marketing department has provided the following information about the expected number of units sold (in millions) this quarter at various prices to help you formulate your decision:…Two oligopolistic firms have to decide on the pricing strategy. Each can either choose either a high or a low price. If they both choose a high price, each will make $12 million, but if they both choose a low price, each will make $ 8 million. If one sets a high price and other a low one, the low-priced firm will make $16 million, but the high-priced firm will make only $4 million. It is illegal for each firm to communicate with each other. a) Which strategy would both of them ultimately opt for? b) What would be the pay-off for this strategy?Suppose Mattel, the producer of Barble dolls and accessorles (sold separately), has two types of consumers who purchase Its dolls: low-value consumers and high-value consumers. Each of the low-value consumers tends to purchase one doll and one accessory, with a total willingness to pay of $44. Each of the high-value consumers buys one doll and two accessorles and Is willing to pay $82 In total. Mattel Is currently considering two pricing strategles: • Strategy 1: Sell each doll for $22 and each accessory for $22 • Strategy 2: Sell each doll for $6 and each accessory for $38 In the following table, Indicate the revenue for a low-value and a high-value customer under strategy I and strategy 2. Then, assuming each strategy is applied to one low-value and one high-value customer, indicate the total revenue for each strategy. Revenue from Low-Value Revenue from High-Value Total Revenue from Customers Customers Strategy $44 Value, 1 Accessory S82 Value, 2 Accessories (s) ($) (s) Strategy 1…
