The two largest cigarette producers are Phillip Morris and R. J. Reynolds. Both are considering whether to increase their price for a pack of cigarettes or keep the price unchanged. The relevant factors to consider are: 1) demand for cigarettes is inelastic, so if both firms raise prices they will increase their revenue, and 2) if one raises price and the other doesn't, they will lose market share to their rival R. J. Reynolds Increase No change Increase R: 500 million R: 400 million P: 600 million P: 300 million Phillip Morris No change R: 200 million R: 300 million P: 500 million P: 400 million Does either cigarette maker have a dominant strategy? Why or why not? Use the above matrix to answer, and assume the two companies do not cooperate For purposes of the problem, ignore the existence of other cigarette makers. 2. Does the answer to #1 change if the two firms can cooperate? 3. How would your answer to #1 change if the outcome matrix changed to the following: R. J. Reynolds Increase No change R: 500 million P: 300 million Increase R: 400 million P: 500 million

Suppose the European Union (EU) was investigated and proposed a merger between two of the largest distillers of premium Scotch liquor. Based on some economists’ definition of the relevant market, the two firms proposing to merge enjoyed a combined market share of about two-thirds, while another firm essentially controlled the remaining share of the market. Additionally, suppose that the (wholesale) market elasticity of demand for Scotch liquor is −2 and that it costs $16.50 to produce and distribute each liter of Scotch. Based only on these data, provide quantitative estimates of the likely pre- and postmerger prices in the wholesale market for premium Scotch liquor. Instructions: Do not round intermediate calculations. Enter your final responses rounded to the nearest penny (two decimal places). Pre-merger price: $ Post-merger price: $

The firms in a duopoly produce differentiated products. The inverse demand for Firm 1 is The inverse demand for Firm 2 is P₂=70-02-0.501- Each firm has a marginal cost of m=$1 per unit. Solve for the Nash-Coumot equilibrium quantities. The Cournot equilibrium quantities are and P₁-52-91-0.592 (Enter your responses rounded to two decimal places.) 4₁ = units 92 units. possibi

1. Consider a market with three firms (i = 1, 2, 3), which have identical marginal costs C = c2 = C3 = 0. The inverse demand function is given by p =1- Q, where Q = 91 + 92 + 93. a. Compute the Cournot equilibrium, i.e., the market price and quantity. b. Assume that two of the three firms merge. Show that the profit of merging firms decreases. c. What happens to the market price if all three firms merge compared to part (a)?

Coca-Cola and PepsiCo are the leading competitors in the market for cola products. In 1960 Coca-Cola introduced Sprite, which today is among the worldwide leaders in the lemon-lime soft drink market and ranks in the top 10 among all soft drinks worldwide. Prior to 1999, PepsiCo did not have a product that competed directly against Sprite and had to decide whether to introduce such a soft drink. By not introducing a lemon-lime soft drink, PepsiCo would continue to earn a $200 million profit, and Coca-Cola would continue to earn a $300 million profit. Suppose that by introducing a new lemon-lime soft drink, one of two possible strategies could be pursued: (1) PepsiCo could trigger a price war with Coca-Cola in both the lemon-lime and cola markets or (2) Coca-Cola could acquiesce and each firm maintain its current 50/50 split of the cola market and split the lemon-lime market 30/70 (PepsiCo/Coca-Cola). If PepsiCo introduced a lemon-lime soft drink and a price war resulted, both companies…

Suppose the European Union (EU) was investigated and proposed a merger between two of the largest distillers of premium Scotch liquor. Based on some economists’ definition of the relevant market, the two firms proposing to merge enjoyed a combined market share of about two-thirds, while another firm essentially controlled the remaining share of the market. Additionally, suppose that the (wholesale) market elasticity of demand for Scotch liquor is −2 and that it costs $16.90 to produce and distribute each liter of Scotch. Based only on these data, provide quantitative estimates of the likely pre- and postmerger prices in the wholesale market for premium Scotch liquor. Instructions: Do not round intermediate calculations. Enter your final responses rounded to the nearest penny (two decimal places). Pre-merger price: $ Post-merger price: $

Rawlding is a manufacturer in the oligopolistically competitive market for footballs. Two other manufacturers, Spaldon and Wilke, compete with Rawlding for football consumers. Rawlding faces the demand curve for footballs depicted on the graph. Initially, Rawlding charges $30 per football, producing and selling 7 million footballs per year. PRICE (Dollars per ball) 36 35 34 33 32 31 30 29 28 27 26 O 7 8 FOOTBALLS (Millions of balls) 9 10 G As an oligopolist, Rawlding is a price maker. If Rawlding raises the price of its football from $30 to $32 per ball, the quantity of Rawlding footballs demanded by million footballs per year. If Rawlding reduces the price of its football from $30 to $28 per ball, the quantity of by million footballs per year. (Hint: Click on the points on the graph to see their coordinates.) footballs demanded If Rawlding raises the price of its football above $30, the kinked demand curve model suggests that Spaldon and Wilke will respond by The portion of Rawlding's…

Coca-Cola and PepsiCo are the leading competitors in the market for cola products. In 1960 Coca-Cola introduced Sprite, which today is the worldwide leader in the lemon-lime soft drink market and ranks fourth among all soft drinks worldwide. Prior to 1999, PepsiCo did not have a product that competed directly against Sprite and had to decide whether to introduce such a soft drink. By not introducing a lemon-lime drink, PepsiCo would continue to earn a $200 million profit and Coca-Cola would continue to earn a $300 million profit. Suppose that by introducing a new lemon-lime soft drink, one of two possible strategies could be pursued: (1) PepsiCo could trigger a price war with Coca-Cola in both lemon-lime and cola markets or (2) Coca-Cola could acquiesce and each firm maintains its current 50/50 split of the cola market and split the lemon-lime market 70/30 in favor of Coca-Cola. If Pepsi introduced a lemon-lime drink and a price war resulted, both companies would earn profits of $100…

As a manager of a chaln of movle theaters that are monopolles in their respective markets, you have noticed much higher demand on weekends than during the week. You therefore conducted a study that has revealed two different demand curves at your movle theaters. On weekends, the Inverse demand function is P= 25 - 0.001Q, on weekdays, It is P= 16 - 0.002Q You acquire legal rights from movie producers to show their films at a cost of $30,000 per movie, plus a $3.50 "royalty" for each moviegoer entering your theaters (the average movlegoer in your market watches a movie only once). What type of pricing strategy should you consider in this case? First degree price discrimination O Block pricing Third degree price discrimination Second degree price discrimination What price should you charge on weekends? Instructions: Enter your response rounded to two decimal places. What price should you charge on weekdays? Instructions: Enter your response rounded to two decimal places. %24

Suppose that a monopolistically competitive restaurant is currently serving 230 meals per day (the output where MR = MC). At that output level, ATC per meal is $10, and consumers are willing to pay $12 per meal. What is this firm's profit or loss? Will there be entry or exit? Will this restaurant's demand curve shift left or right? In long-run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $8. What is the firm's profit? (LO3)