ECO 550 Week 7 - Check Your Understanding Ch. 13 and 14 (All Questions Answered)
ECO 550 Week 7 - Check Your Understanding Ch. 13 and 14 (All Questions Answered) fin571
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Date Created: 11/11/15
2 Consider the following payoff matrix a Does Player A have a dominant strategy Explain why or why not Player A does not have a dominant strategy because their quotoptimal decision depends on the strategy of B If player B chooses Strategy 1 then player A should also chooseStrategy 1 in order to remain competitive If player B chooses Strategy 2 then player A should also choose Strategy 2 because it would determine Player A s optimal choice to have a dominant Strategy b Does Player B have a dominant strategy Explain why or why not Player B also does not have a dominant strategy Its optimal decision depends on what player A does If player A chooses strategy 1 then player B would bene t by choosing strategy 1 as weBut if player A chooses strategy 2 then player B39s optimal choice is also strategy 2 13 Analyze the following sequential game and advise Kodak about whether they should introduce the new product Picture CD ANSWERntroduce Picture CD since Sony39s best reply response will be to increase advertising and Kodak will then price moderately yielding 610 Kodak 590 Sony 15A math graduate student explains to her friend how to approach a group of smartattractive guys who have brought along famous actor Russell Crowe What shouldher friend do Ignore Russell Crowe or xate on Russell Crowe Explain the equilibrium reasoning underlying your answer Note Best payoff date with RC Better date with other guys Worse no date tonight Worst nodate ever with any of these guys ANSWERThe NE and SW cells are the only two pure equilibrium both Nash equilibrium The two graduate students should work together to coordinate their response so that they can avoid the occurrence of NW cell and SE cell outcomes Perhaps ip for who will approach Russell Crowe or alternate 3 American ExportImport Shipping Company operates a general cargo carrier service between New York and several Western European ports It hauls two majorcategories of freight manufactured items and semi manufactured raw materials The demand functions for these two classes of goods are P1 100 2Q1 P2 80 Q2 Where Q1 tons of freight moved The total cost function for American is TC 20 4Q1 Q2 a n 20 96Q1 76o2 2Q21 Q22 b What are the profitmaximizing levels of price and output for the twofreight categories BatBQF 96 4Q1 0 Q1 24 tons P1 52unit 1004852 8113an 76 2Q2 0 Q 38 tons P2 42unit 8038 42 c At these levels of output calculate the marginal revenue in each market TR 100Q1 2Q12 80Q2 Q22 MR1 8TR8Q1 100 4Q1 100 424 4unit MR2 8TR8Q2 80 2Q2 80 238 4unit d What are American s total profits if it is effectively able to charge differentprices in the two markets 71 20 9624 7638 2242 382 2576 5 Phillips Industries manufactures a certain product that can be sold directly to retail outlets or to the Superior Company for further processing and eventual sale asa completely different product The demand function for each of these markets is Retail Outlets P1 60 2 Q1 Superior Company P2 40 Q2 WhereP1 and P2 are the prices charged and Q1 and Q2 are the quantities sold inthe respective markets Phillips total cost function for the manufacture of thisproduct isTC 10 8Q1 Q25 a Determine Phillips total profit function TRI PlQ1 602Q1 Q1 60Q1 2Q12 TR2 PzQ2 40Q2 Q2 40Q2 Q22 TC 10 8Q1 8 Q2 1 TR TC 10 52Q1 2Q12 32Q2 Q22 b What are the profitmaximizing price and output levels for the product inthe two markets Q152 4Q10 Q1 13 units P1 60 213 34unit Q2 32 2Q2 0 Q 16 units P2 40 16 24unit c At these levels of output calculate the marginal revenue in each market TR1 60Q1 2le MR1 60 4Q1 60 413 8unit TR2 40Q2 Q22 MR2 40 2Q2 40 2 16 8unit 8 The Pear Computer Company just developed a totally revolutionary new personal computer It estimates that it will take competitors at least two years to produce equivalent products The demand function for the computer is estimated to be P 2500 00005Q The marginal and average variable cost of producing the computer is 900 a Compute the pro tmaximizing price and output levels assuming Pear acts as a monopolist for its product P 2500 0005Q and MC 900 and TR PQ so TR 2500Q 0005Q2 MR 2500 001Q 900 at the most profitable output Q 1600000 units so P 2500 00051600000 1700unit b Determine the total contribution to profits and xed costs from the solution generated in Part a Profit contribution 17001600000 9001600000 1280000000 Pear Computer is considering an alternative pricing strategy of price skimming It plans to set the following schedule of prices over the coming two years c Calculate the contribution to profit and overhead for each of the 10 time periods and prices TimePeriodPrice Q 1 DOOQONUIPUJN CostQContribution to Profit Profit contribution 2400200000 900200000 300000000 Profit contribution 2200200000 900200000 260000000 Profit contribution 2000200000 900200000 220000000 Profit contribution 1800200000 900200000 180000000 Profit contribution 1700200000 900200000 160000000 Profit contribution 1600200000 900200000 140000000 Profit contribution 1500200000 900200000 120000000 Profit contribution 1400200000 900200000 100000000 Profit contribution 1300200000 900200000 80000000 10 Profit contribution 1200200000 900200000 60000000 Total 1650000000 2 If contract promises were not excused because of acts of war would the clearing and settlements clients of Bank of New York change their behavior If so how What reliance behavior would be considered ef cient What reliance behavior would be considered excessive The frustration ofpurpose doctrine is an excusal of violation of contract under the Uniform Commercial Code But if a contract is violated and not excused in nancial dealings of the Bank of New York customers would have to make backup plans to buy and sell securities and clear their trades through other nancial intermediaries Ef cient reliance would constitute customers undertaking risk exposures that rms like the Bank of New York might face Excessive reliance would then be exempli ed by unanticipated risk exposures that customers undertook 5 Would warehouse operators insist on owning their own trucking companies Why or why not What coordination and control problems and contractual hazards would these companies encounter Warehouse operators would not insist on owning their own trucking rms They are not dependent because they are not unique complements Most warehouses will work with multiple trucking rms Other standard coordination and control problems would be holdup at renewal and incentives to elicit unobservable effort 6 What organizational form would warehouse operators and truck hauling companies adopt Table 153 lists the ef cient organizational forms based on asset characteristics Because warehouse operators and truck hauling operators are at least plausibly redeployable relational contracts and joint ventures are warranted If we view the warehouse as nonredeployable then xed pro t sharing contracts may be considered They may also enter into long term supply contracts to the extent that the relationship is viewed as one way
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