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Betty and Sue both have accounting practices that specialize in income tax preparation. If they both advertise their services each year before the income tax season begins, they will each earn $3 per return. If neither one of them advertises, they will each earn $10 per return. If one advertises and the other one doesn’t, the one who advertises will earn $150 per return and the one who doesn’t advertise will only earn $1 per return. What interest rate would make it so that both of them had the incentive to not advertise?
A. 10% and below B. 5% and above C. 5% and below D. 10% and above E. none of the above
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- A country’s market for new motor vehicles is dominated completely by two firms, Fastcars Ltd and Slowcars Ltd. Market revenue is fixed at $10 billion. Each firm can choose whether to advertise. Advertising costs $1 billion for each firm that advertises. If one firm advertises and the other does not, then the firm that advertises receives 100% of market revenue and pays for its advertising. If both firms advertise, they split the market revenue 50:50 and pay for their respective advertising. If neither advertises, they split the market revenue 50:50 but without the expense of advertising. a) What strategy would you advise that Fastcars Ltd should follow? b) What would you predict will be the strategy chosen by each firm? c) Is there an outcome that would make both firms better off? In case you find that there is such an outcome, is it achievable?Tobacco companies have often argued that they advertise to attract more existing smokers and not to persuade more people to smoke. Suppose there were just two cigarette manufacturers, Jones and Smith. Each can either advertise or not advertise. If neither advertises, they each capture 50 percent of the market and each earns $10 million. If they both advertise, they again split the market evenly, but each spends $2million on ads and so each earns just $8million (remember, advertising is not supposed to encourage more people to smoke). If one company advertises but the other does not, then the company that advertises attracts many of its rival's customers. As a result, the company that advertises earns $12 million and the company that does not earns just $6 million. Advertise Don't Advertise Smith: 8 Smith: 6 Advertise Jones: 8 Jones: 12 Jones Smith: 12 Smith: 10 Don't Advertise Jones: 6 Jones: 10 What is each firm's dominant strategy? Both firms' dominant strategy is to advertise. Both…Store A and Store B compete for the business of the same customer base. Store A has 55% of the business and Store B has 45%. Both companies intend to expand to increase their market share. If both expand, or neither expand, they expect their market share to remain the same. If Store A expands and Store B does not, then Store A's share increases to 65%. If Store B expands and Store A does not, then Store A's share drops to 50%. Determine which strategy, to expand or not, each company should take.
- After graduation from business school, Pete wanted to start a new business. In competition with another firm, he became involved in developing a new technology that would allow consumers to sample food over the Internet. Given the newness of this market, technological compatibility across firms is important. Pete’s firm, DigiOdor, is far advanced in developing its Sniff technology. His competitor, WebTaste, has been working on an incompatible technology, Smell. If they both adopt the same technology, Sniff or Smell, they each may gross $150 million from the developing industry. If they adopt different technologies, consumers will later decide to purchase neither product, leading to gross sales of $0 each. In addition to the above considerations, switching over to the other technology would cost WebTaste $100 million right away and DigiOdor $250 million. In other words, WebTaste would incur additional costs of $100 million if it switched to Sniff technology, and DigiOdor would incur…Two equal-sized newspapers have an overlap circulation of 10% (10% of the subscribers subscribe to both newspapers). Advertisers are willing to pay $8 to advertise in one newspaper but only $15 to advertise in both, because they're unwilling to pay twice to reach the same subscriber. Suppose the advertisers bargain by telling each newspaper that they're going to reach agreement with the other newspaper, whereby they pay the other newspaper $7 to advertise. According to the nonstrategic view of bargaining, each newspaper would earn _____ of the $7 in value added by reaching an agreement with the advertisers. The total gain for the two newspapers from reaching an agreement is ____. . Suppose the two newspapers merge. As such, the advertisers can no longer bargain by telling each newspaper that they're going to reach agreement with the other newspaper. Thus, the total gains for the two parties (the advertisers and the merged newspapers) from reaching an agreement with the…Two equal-sized newspapers have an overlap circulation of 10% (10% of the subscribers subscribe to both newspapers). Advertisers are willing to pay $15 to advertise in one newspaper but only $29 to advertise in both, because they're unwilling to pay twice to reach the same subscriber. Suppose the advertisers bargain by telling each newspaper that they're going to reach agreement with the other newspaper, whereby they pay the other newspaper $14 to advertise. According to the nonstrategic view of bargaining, each newspaper would earn of the $14 in value added by reaching an agreement with the advertisers. The total gain for the two newspapers from reaching an agreement is Suppose the two newspapers merge. As such, the advertisers can no longer bargain by telling each newspaper that they're going to reach agreement with the other newspaper. Thus, the total gains for the two parties (the advertisers and the merged newspapers) from reaching an agreement with the advertisers are $14.…
- Suppose that two companies – AlphaTech and BetaLabs – are competing for market share and must simultaneously decide whether to develop a new product. Both companies are reluctant to make a decision as it is only economical for one company to develop a new product. Each company earns nothing if they decide not to develop a new product. One company can earn $50 million by developing a new product only if their competitor does not. If both companies decide to develop a new product, they each lose $10 million. Complete the payoff matrix to represent this game. Based on your solution in part (a), determine the maximin solution.Thelma and Louise are competitors in a local beer market and each is trying to decide if it is worthwhile to advertise. If both of them advertise, each will earn a profit of $2000. If neither of them advertises, each will earn a profit of $5000. If one advertises and the other doesn't, then the one who advertises will earn a profit of $7500 and the other will earn a profit of $1000. To make the most money, what should Thelma do and how much profit will she earn? Select one: a. she should advertise, and she will earn $7500 b. she should do whatever Louise does, and will earn either $2000 or $5000 C. she should not advertise, and she will earn $5000 d. she should advertise, and she will earn $2000 Next pageTaylor, Faith, Jay, and Jessica are college roommates. They're trying to decide where the four of them should go for spring break: Orlando or Las Vegas. If they order the tickets by 11:00 PM on February 1, the cost will be just $500 per person. If they miss that deadline, the cost rises to $1,200 per person. The following table shows the benefit (in dollar terms) that each roommate would get from the two trips. Roommate Taylor Benefit from Orlando Benefit from Las Vegas Faith $1,250 $800 $550 $800 Jay Jessica $650 $600 $850 $1,050 The roommates tend to put off making decisions. So, when February 1 rolls around and they still haven't made a decision, they schedule a vote for 10:00 PM that night. In case of a tie, they will flip a coin between the two vacation destinations. The roommates will get the most total benefit if they choose to go to Given the individual benefits each roommate receives from the two trips, which trip will each roommate vote for? Fill in the table with each…
- Two airlines, Dragon Airline and Phoenix Airline, provide direct flight service to a city and tend to compete for the same group of travellers. They are contemplating changing their airfares to earn more profit. If both airlines raise their airfares, Dragon Airline will earn $800m while Phoenix Airline will earn $400m in profit. If both airlines reduce their airfares, Dragon Airline will earn $650m while Phoenix Airline will earn $550m in profit. If Dragon Airline raises its airfare while Phoenix Airline reduces its airfare, Dragon Airline will earn $200m while Phoenix Airline will earn $350m in profit. If Dragon Airline reduces its airfare while Phoenix Airline raises its airfare, Dragon Airline will earn $300m while Phoenix Airline will earn $250m in profit. Construct the payoff matrix in terms of profit for the two pricing strategies. Apply a game theory concept and solve this game using the Nash equilibrium method. Explain how you derive your answers and also whether this game is a…There is a Jexaco gas station right across the street from a Jalero station in Pennsylvania It is safe to assume that they compete locally for the same consumers and can observe the prices posted on each other's marquees. Demand for gasoline in this local market is Q = 80 − 6P, and both stations obtain gasoline from their supplier at $2.20 per gallon. On the day that both franchises opened for business, each owner was observed changing the price of gas advertised on its marquee more than 10 times; the owner of Jexaco lowered its price to slightly undercut Jalero's price, and the owner of Jalero lowered its price to beat Jexaco's. Since then, prices appear to have stabilized. Which of the oligopoly models is most suitable for explaining this behavior by these firms? Under current conditions, how many gallons of gasoline are sold in the market, and at what price? Would your answer differ if Jalero had service attendants available to fill consumers' tanks but Jexaco was only a…Mary and Raj are the only two growers who provide organically grown corn to a local grocery store. They know that if they cooperated and produced less corn, they could raise the price of the corn. If they work independently, they will each earn $100. If they decide to work together and both lower their output, they can each earn $150. If one person lowers output and the other does not, the person who lowers output will earn $0 and the other person will capture the entire market and will earn $200. The table represents the choices available to Mary and Raj. What is the best choice for Raj if he is sure that Mary will cooperate? Mary Keeps Producing Mary Lowers Output Raj Keeps Producing $100, $100 $200, $0 $150, $150 Raj Lowers Output $0, $200 O If Raj is sure Mary will cooperate, he should cheat. O If Raj is sure that Mary will cooperate, he should agree to work together. O If Raj is sure Mary will cooperate, he should work independently. Previous Next
