ECN 104 Lecture Notes - Sales Promotion, Herfindahl Index, Natural Monopoly

223 views7 pages

greyherring517

9 Jul 2013

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Consider the following payoff matrix in which the numbers indicate the profit in millions of dollars for a duopoly based either on a high-price or a low-price strategy. Low-price (a) what will be the result when each firm chooses a high-price strategy? (b) what will be the result when firm a chooses a low-price strategy while firm. B maintains a high-price strategy? (c) what will be the result when firm b chooses a low-price strategy while firm. Compared to the high-price strategy, firm a has an incentive to cut prices because it will earn million more in profit and firm b will earn million less in profit. Together, the firms will earn million in profit, which is million less than with a high-price strategy. (c) firm b has an incentive to cut prices because it will earn million and.

Related Questions

Given the following payoff matrix, (a) indicate the best strategy for each firm. (b) Will firm A use the low price as a threat if firm B enters? (c) What could firm A do to make its threat credible without building excess capacity?

Firm B

Enter Don't Enter

Low Price (3, 21) (3,1)

Firm A

High Price (4, 5) (6, 3)

5) Consider the following pay-off matrix (numbers in the matrix reflect their respective profit levels) for two gas stations. If each firm follows its dominant strategy, then what will be their respective profit levels? And if they collude then what is their new profit level?

	Gas station A
Gas Station B	High price	Low price
High price	200,000 AED; 200, 000 AED	50,000 AED; 400,000 AED;
Low price	400,000 AED; 50,000 AED	80,000 AED; 80,000 AED;

aquamarinegnu196

The only two firms in an oligopolistic market face the following matrix showing price and profit data. The numbers in the matrix are annual profits (in millions of dollars) with the first number in each cell of the matrix representing the profit of firm A and the second number in each cell the profit of firm B. The firms can charge a price of either $50 a unit or $40 a unit. (15 points)

Firm B

$50 $ 40

$50 200; 200 75; 250

Firm A

$40 250; 75 125; 125

a. Define the term dominant strategy. Does either firm have a dominant strategy?

b. Define the term Nash equilibrium. Is there a Nash equilibrium in this game?

c. Explain what is meant by the term prisonerâs dilemma. Describe a set of conditions that would increase the likelihood that the two firms would be able to solve the prisonerâs dilemma problem.

ECN 104 Lecture Notes - Sales Promotion, Herfindahl Index, Natural Monopoly

Document Summary

Get access

Related Documents

ECN 104 Lecture Notes - Lecture 13: Monopsony, Diminishing Returns, Marginal Revenue Productivity Theory Of Wages

ECN 104 Study Guide - Quiz Guide: Marginal Cost, Fixed Cost, Allocative Efficiency

ECN 104 Study Guide - Share Repurchase, Investment, Cash Flow

Related Questions