Group: Will Lee, Max Speil, Michael Jastrzebski, Frankie Villante
Econ 364 homework #2
Chp 5. Discussion #2
Reason for 3M Dominance: conditional pricing in the form of rebates to retail stores that purchased its private label tape along with other 3M product lines. The more that the retailers bought, the higher their rebates would be. This resulted in a loss of sales for LePage tape.
3M’s action would be consistent with the dominant-firm price leadership model because they had a significant cost advantage and a superior product because they were the incumbent in the industry. Too some degree, due to the rebates, 3M was earning an economic profit, while LePage was forced to earn normal profits because they could not offer the same low prices.
Chp 5. …show more content…
Discussion #1
All dominant strategy equilibria are also Nash Equilibria, but not all Nash Equilibria are also dominant strategy equilibria.
Chp 7. Discussion #5
The nash equilibrium is E entering, and I not fighting. Using the web you get to this by doing backwards induction.
No this threat is not credible. If E enters, I will still be better off not fighting. While fighting would prevent E from getting any profits, it would lower I’s profits from 50 to 10.
Chp 8. Discussion #1
Chp 8. Discussion #4
As the number of firms increases towards infinity, the Cournot model gives the same result as in the Bertrand model: The market price is pushed to marginal cost level and economic profits are 0.
Problem #8
Non contestable means firm is acting like a true monopoly so MR=MC to profit maximize: 165-6Q=10 : Q=25.83 Since P= 165 -3Q : P= 165 -3(25.83) P= $87.5 Profit = (87.5*25.83)-(10*25.83) =$2002.06
The entry limit price: AC=P → 10=165-3Q → -155=-3q → q=51.66 → plug back into P → P=165-3(51.66) → P=$10 → Revenue= 10(51.66)=516.6 → Cost=10q → Cost=516.6 → Profit=0
Problem #9
If the two firms move simultaneously, the nash equilibrium will be (Grass Fed, Disgusting) and (Disgusting, Grass
Econ 364 homework #2
Chp 5. Discussion #2
Reason for 3M Dominance: conditional pricing in the form of rebates to retail stores that purchased its private label tape along with other 3M product lines. The more that the retailers bought, the higher their rebates would be. This resulted in a loss of sales for LePage tape.
3M’s action would be consistent with the dominant-firm price leadership model because they had a significant cost advantage and a superior product because they were the incumbent in the industry. Too some degree, due to the rebates, 3M was earning an economic profit, while LePage was forced to earn normal profits because they could not offer the same low prices.
Chp 5. …show more content…
Discussion #1
All dominant strategy equilibria are also Nash Equilibria, but not all Nash Equilibria are also dominant strategy equilibria.
Chp 7. Discussion #5
The nash equilibrium is E entering, and I not fighting. Using the web you get to this by doing backwards induction.
No this threat is not credible. If E enters, I will still be better off not fighting. While fighting would prevent E from getting any profits, it would lower I’s profits from 50 to 10.
Chp 8. Discussion #1
Chp 8. Discussion #4
As the number of firms increases towards infinity, the Cournot model gives the same result as in the Bertrand model: The market price is pushed to marginal cost level and economic profits are 0.
Problem #8
Non contestable means firm is acting like a true monopoly so MR=MC to profit maximize: 165-6Q=10 : Q=25.83 Since P= 165 -3Q : P= 165 -3(25.83) P= $87.5 Profit = (87.5*25.83)-(10*25.83) =$2002.06
The entry limit price: AC=P → 10=165-3Q → -155=-3q → q=51.66 → plug back into P → P=165-3(51.66) → P=$10 → Revenue= 10(51.66)=516.6 → Cost=10q → Cost=516.6 → Profit=0
Problem #9
If the two firms move simultaneously, the nash equilibrium will be (Grass Fed, Disgusting) and (Disgusting, Grass