Question 1

Given payoff matrix
  What's the Nash Equilibrium?
Suppose Joe can move first,choosing his color before Sally.Use a tree diagram to show what color Joe will choose.
How much would Joe be willing to pay to choose first?

Accepted Answer

The answer of Given payoff matrix
  What's the Nash...

Question 2

Suppose two companies,Rosencrantz and Guildenstern,are both selling the same software technology,Alpha.They have an equal share in the market,which is worth a total of $100,000.However,both companies are deciding whether to develop the next generation software,Beta,which has huge market potential.Beta's probability of success is 0.60.If only one company enters the Beta market,the entire market is worth $250,000.On the other hand,if both companies introduce Beta,the successful market value would be only $150,000 since competition would reduce the price.If both succeed,both would hold an equal share in the Beta market as well.
If Beta fails,the total market would only be $20,000 regardless of how many companies enter the market.
In addition,the company not entering the Beta market could capture Alpha's market all to themselves (launching Beta means a loss of all Alpha sales)
Should either company continue to develop Beta? How could one company gain an advantage?

Accepted Answer

The answer of Suppose two companies,Rosencrantz and Guildenstern,are both selling...

Question 3

Your company has developed a drug called Matrox that is an effective treatment for migraine headaches.You have just discovered that it can also be used for organ transplant patients to reduce the risk of organ rejection.The demand for migraine medications is considerably more elastic than the demand for drugs to reduce the risk of organ rejections.A study has indicated that the elasticity of demand for Matrox as a migraine medication is -4.0 but as a transplant drug it is -1.5.The current price of Matrox is $10 per dose; the marginal cost is $5 per dose.Should you use a price discrimination scheme for this product in these two markets? If so,how should you price Matrox in each market? If not,why not? Show all calculations.

Accepted Answer

The answer of Your company has developed a drug called...

Question 4

Two companies,A and B,are considering entry into the same two markets: Asia or Australia.Due to financial constraints each company can only enter one of the two markets.The expected payoffs to each company for each possible entry scenario are as follows:
 $\begin{array}{|l|l|c|c|}
\hline \text { Company A Decision } & \text { Company B Decision } & \text { Payoff to A } & \text { Payoff to B } \
\hline \text { Enter Asia } & \text { Enter Asia } & \$ 35 \mathrm{M} & \$ 50 \mathrm{M} \
\hline \text { Enter Asia } & \text { Enter Australia } & \$ 50 \mathrm{M} & \$ 90 \mathrm{M} \
\hline \text { Enter Australia } & \text { Enter Asia } & \$ 85 \mathrm{M} & \$ 60 \mathrm{M} \
\hline \text { Enter Australia } & \text { Enter Australia } & \$ 40 \mathrm{M} & \$ 45 \mathrm{M} \
\hline
\end{array}$ a)Construct a game that represents the entry decision.
b)What type of game is it?
c)Circle all Nash equilibriums for the game.
d)Company A has hired you as a consultant.What advice would you give them regarding this entry decision?

Accepted Answer

The answer of Two companies,A and B,are considering entry into...

Question 5

A corn farmer is considering two alternatives for selling his crop.The first is a contract where he can sell the rights to the future crop at planting.The second is to sell the crop after harvest.At harvest the farmer estimates that the price of corn will be $10 per bushel with probability .5 and $12 per bushel with probability .5.The farmer is averse to risk,and is willing to pay $50,000 to avoid the risk of damage to the crop while it is growing (e.g.,from a tornado or flood).If the farmer uses pesticides he expects a crop of 60,000 bushels; if he does not use pesticides he expects a crop of 55,000 bushels.The cost of pesticides is $20,000.The other costs associated with planting and harvesting the crop total $450,000.
a.If the farmer decides to sell the crop at harvest will he be better off using pesticides or not using them? What is the farmer's expected profit in each case?
b.What is the maximum a purchaser would be willing to pay to the farmer for the rights to the future corn crop assuming they cannot monitor the farmer after purchasing the contract? Defend your answer.
c.Which alternative: (1)sale of rights prior to planting or (2)selling the crop after harvest yields the maximum expected benefit for the farmer considering his level of risk aversion?
[this question is inspired by a question originally written by Sal March]

Accepted Answer

The answer of A corn farmer is considering two alternatives...

Quiz 1: Managerial Economics

Given payoff matrix What's the Nash Equilibrium? Suppose Joe can move first,choosing his color before Sally.Use a tree diagram to show what color Joe will choose. How much would Joe be willing to pay to choose first?