Use the following information to answer the next 4 questions: Burger Doodle, the incumbent firm, wishes to set a limit price of $8 (rather than the profit-maximizing profit of $12) to prevent Designer Burger from entering its profitable market. The game tree below shows the payoffs for various decisions. Burger Doodle makes its pricing decision, then Designer Burger decides whether to enter or stay out of the market. If Designer Burger chooses to enter the market, then Burger Doodle may or may not decide to accommodate Designer's entry by changing its initial price to the Nash equilibrium price of $10. B. Doodle P-$12 Designer B., B. Doodle P-58 -$40,000, $75.000 Enter B. Doodle PN-$10 $25,000, $96,000 Designer B. Stay out 0. $125,000 P-$12 $95,000, $100,000 Enter B. Doodle PN-$10 $25,000, $101,000 Designer B. Stay out 0. $165.000 Question 12 In order for Burger Doodle to successfully implement a limit pricing strategy for entry deterrence, it must be able to a) convince Designer Burger that it will set the Nash price of $10 should Designer Burger decide to stay out of the market. b) convince Designer Burger that it will set the Nash price of $10 should Designer Burger decide to enter the market. c) make a credible commitment to maintain its initial price should Designer Burger decide to enter the market. d) make a credible promise to price its burgers at $12. e) make a credible threat to lower its price to $8 should Designer Burger decide to enter the market. Question 13 If the condition in the prior question is met, Burger Doodle will set its price equal to $ and it will earn $ of profit, while Designer Burger will earn $of profit. a) 8; 125,000; 0 b) 8; 75,000; -40,000 c) 10; 101,000; 25,000 d) 10; 96,000; 25,000 e) 12; 165,000; 0 Question 14 If the condition in Q12 is NOT met, Burger Doodle will set price equal to $ at decision node 3 and it will earn $_ of profit, while Designer Burger will earn $ _____ of profit. a) 8; 125,000; 0 b) 8; 75,000; -40,000 c) 10; 101,000; 25,000 d) 10; 96,000; 25,000 e) 12; 165,000; 0 Question 15 If the condition in Q12 is NOT met, Burger Doodle will set price equal to $at decision node 1 and the outcome (is, is not) a Nash equilibrium. a) 8; is b) 8; is not c) 12; is d) 12; is not

Use the following information to answer the next 4 questions: Burger Doodle, the incumbent firm, wishes to set a limit price of $8 (rather than the profit-maximizing profit of $12) to prevent Designer Burger from entering its profitable market. The game tree below shows the payoffs for various decisions. Burger Doodle makes its pricing decision, then Designer Burger decides whether to enter or stay out of the market. If Designer Burger chooses to enter the market, then Burger Doodle may or may not decide to accommodate Designer's entry by changing its initial price to the Nash equilibrium price of $10. B. Doodle P-$12 Designer B., B. Doodle P-58 -$40,000, $75.000 Enter B. Doodle PN-$10 $25,000, $96,000 Designer B. Stay out 0. $125,000 P-$12 $95,000, $100,000 Enter B. Doodle PN-$10 $25,000, $101,000 Designer B. Stay out 0. $165.000 Question 12 In order for Burger Doodle to successfully implement a limit pricing strategy for entry deterrence, it must be able to a) convince Designer Burger that it will set the Nash price of $10 should Designer Burger decide to stay out of the market. b) convince Designer Burger that it will set the Nash price of $10 should Designer Burger decide to enter the market. c) make a credible commitment to maintain its initial price should Designer Burger decide to enter the market. d) make a credible promise to price its burgers at $12. e) make a credible threat to lower its price to $8 should Designer Burger decide to enter the market. Question 13 If the condition in the prior question is met, Burger Doodle will set its price equal to $ and it will earn $ of profit, while Designer Burger will earn $of profit. a) 8; 125,000; 0 b) 8; 75,000; -40,000 c) 10; 101,000; 25,000 d) 10; 96,000; 25,000 e) 12; 165,000; 0 Question 14 If the condition in Q12 is NOT met, Burger Doodle will set price equal to $ at decision node 3 and it will earn $_ of profit, while Designer Burger will earn $ _____ of profit. a) 8; 125,000; 0 b) 8; 75,000; -40,000 c) 10; 101,000; 25,000 d) 10; 96,000; 25,000 e) 12; 165,000; 0 Question 15 If the condition in Q12 is NOT met, Burger Doodle will set price equal to $at decision node 1 and the outcome (is, is not) a Nash equilibrium. a) 8; is b) 8; is not c) 12; is d) 12; is not

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter10: Monopolistic Competition And Oligopoly

Section: Chapter Questions

Problem 13PAE

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