Consider the following "location game." There are two ice cream sellers (Seller 1 and Seller 2) in a small city. Residents are uniformly located on a straight street of length 1. The ice cream sellers need to choose where to set up their carts, and each resident will purchase one unit of ice cream from the nearest seller. The city council has fixed the price of the ice cream, and as a result, each seller just wants sell as much ice cream as possible.
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- Suppose Tasty Cakes is deciding its pricing strategy: it is debating whether to offer a single linear price for its sheet cakes or to offer non-linear pricing. Suppose on any day, it gets 2 customers–who are of Type A and TypeB with the following maximum willingness-to-pay for the cakes: Units Type A Type B 1 $100 $90 2 $75 $40 Suppose it costs $10 to bake each of the cakes. (a) If Tasty Cakes decides to pick a linear pricing strategy, what will be the profit-maximizing price it should choose? How many cakes will it end up selling and what will be its total profit? (b) If Tasty Cakes decides to pick a non-linear pricing strategy where it may offer a different price depending on the number of cakes purchased, what should be the profit-maximizing set of prices? How many cakes will it sell and what will be its total profit? (c)Comparing Tasty Cakes’profits in (a) and (b), explain IN WORDS why we see this difference in profitsMacmillan Learning You notice that the prices of coffee at your local supermarket vary from week to week, causing you to buy different brands, depending on which is cheaper that week. Your friend William, by contrast, is a hardcore Peet's fan and buys only Peet's, whether the price is $5.99 per pound or $12.99 per pound. By varying coffee prices, the supermarket sells both to you, who is relatively price particular about coffee, and to William, who is relatively price and and particular about coffee. O sensitive; less; insensitive; more insensitive; more; sensitive; less sensitive; more; insensitive; less insensitive; less; sensitive; more Incorrect. When Chinese automakers began exporting cars, rather thanfocusing on developed nations in the West, they shippedautos to emerging markets in countries such as Algeria, Russia,Chile, and South Africa. In these markets, even used vehiclesfrom multinational manufacturers are relatively scarce—andrelatively expensive. The Chinese automakers, who prioritizelow cost rather than design or even safety, applied a penetration-pricing strategy. A woman in Santiago, Chile, who boughta new Chery S21 explained, “The price factor is fairly decisive.I paid $5,500 new and full. Toyota with similar features costsaround $12,000.” Why do you think Chinese automakerschose that pricing strategy? Do you think it was successful?As Chinese regulators pressure these manufacturers to maketheir cars safer, do you think they will be able to keep theirprices low compared with those of the international automakers? Why or why not?26
- itle A reliable 15-year-old babysitter can be a price maker within her own neighborhood. Suppose that th Description A reliable 15-year-old babysitter can be a price maker within her own neighborhood. Suppose that this babysitter wishes to implement a Multipart Pricing Plan. Customers who use her services less than L hours per month will pay a high price of PH dollars per hour. Customers who use her services more than L hours per month will still pay PH dollars for the first L hours, but for any additional hours they can then pay the lower price PL dollars per hour which she will generously set equal to her marginal cost. Assume that market demand is QD = 60 – 10P and her total costs are C = 3Q; so PL = $3 per hour. If she set her high price at $4 per hour, would her customers accept a limit of L = 24 hours per month in order to use the remainder of her services at a price of $3 an hour? Provide a labelled diagram and briefly explain. Suppose that this talented babysitter was…2. Consider the following "location game." There are two ice cream sellers (Seller 1 and Seller 2) in a small city. Residents are uniformly located on a straight street of length 1. The ice cream sellers need to choose where to set up their carts, and each resident will purchase one unit of ice cream from the nearest seller. The city council has fixed the price of the ice cream, and as a result, each seller just wants sell as much ice cream as possible. (a) We think of this "location game" as a simultaneous-move game, in which each player's payoff is the proportion of residents that buy from her cart. Is this game with discrete strategies or continuous strategies? Please state the set of (pure) strategies for both sellers. Is this game zero-sum or non-zero-sum? (b) Find all NE(s) of this game. (c) Is there an alternative pair of locations for the sellers such that the residents’ total walking distance is reduced but neither seller is hurt? Is it an NE? (d) Suppose now that there are…Consider a town in which only two residents, Eric and Ginny, own wells that produce water safe for drinking. Eric and Ginny can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. Note: the second picture of the last blank has 4 option A. nash equilibrium B tying c resale price maintenance D predatory pricing
- 2.19. Standard setting. Suppose Apple and Samsung are in the process of negotiating a common standard for a new 3D camera tech- nology they plan to introduce in the next generation of smartphones. Apple has a preference for standard A, whereas Samsung has a pref- erence for standard S. However, both recognize that multiple stan- dards are a worse outcome for all. Specifically, Apple gets 240 if it selects A and Samsung does so too, but only 20 if Samsung does not adopt A. If Apple adopts standard S and Samsung does so too, then Apple gets a payoff of 190. If, however, Samsung chooses A then Ap- ple gets zero. For Samsung, the situation looks similar: If Samsung chooses standard S and Apple does the same then Samsung gets 210, but if Apple chooses A the Samsung's payoff is only 30. If Samsung opts for standard A and Apple does so too then Samsung gets a pay- off of 110, whereas if Apple chooses standard S then Samsung gets a payoff of zero. (a) Suppose that both Apple and Samsung…Larry, Curly, and Moe run the only saloon in town.Larry wants to sell as many drinks as possiblewithout losing money. Curly wants the saloon tobring in as much revenue as possible. Moe wantsto make the largest possible profits. Using a singlediagram of the saloon’s demand curve and its costcurves, show the price and quantity combinationsfavored by each of the three partners. Explain. (Hint:Only one of these partners will want to set marginalrevenue equal to marginal cost.)Question Suppose there are only two companies that make a product: Company X and Company Y. Now suppose that both companies have to choose one of two potential strategies for pricing their headphones: setting a low price or setting a high price. The table below shows the expected profits for each company under each pricing scenario. Assume both companies are in competition with each other and seek to maximize their profits. Under these conditions, how much profit should we expect both companies to earn? Company Y High Price Low Price Company X High Price Profit for Company Y: $1,709, 000 Profit for Company X: $1,709,000 Profit for Company Y: $2, 136, 000 Profit for Company X: $256,000 Provide your answer below: Low Price Profit for Company Y: $256, 000 Profit for Company X: $2,136,000 Profit for Company Y: $854,000 Profit for Company X: $854, 000
- 4. Consider the following Pricing game. Firms A and B each has two strategies: to charge Low or High price. The following table shows the payoffs for all possible outcomes: Firm B Pricing Strategy Low High Low Firm A 0,0 -200, 400 High 400, -200 100, 100 Suppose that Firms A and B are going to play this game over and over again, forever. Also, suppose both firms agree on the following collusive plan: "We will each charge the high price, provided neither of us has ever charged the low price in any previous period. If one of us cheats and charges the low price, the other player will charge the low price in every period thereafter." Answer the following questions about this infinitely repeated game:The payoff matrix below describes a one-shot game in which two farmers ("Player A" and "Player B") choose between planting corn or planting wheat. The payoffs in this matrix represent thousands of dollars of income, so more is better. Pla yer A Plant Corn Plant Wheat What kind of equilibrium is this? Plant Corn Dominant Strategy Equilibrium Nash equilibrium 3, 3 Player B 5,0 Both a Nash and a Dominant Strategy Equilibrium O No equilibrium Plant Wheat 0,5 1, 1Otto has a monopoly on limousine service, and Carla is thinking about Kentenng the market. The outcome of the entry-deterrence game represented by the game tree to the right is that Otto picks the quantity and Carla the market Small Quantity Otto Large Quantity Carla Carla Enter Stay out Enter Otto $50 Carla $50 Otto $90 Carla 50 Otto So Carla -$10 Otto $60 Stay out Carla $0 a C