Two firms, Small and Large, compete by price. Each can choose either a low price or a high price. The following payoff table shows the profit (in thousands of dollars) each firm would earn in each of the four possible decision situations: a) Is there a dominant strategy for Small? If so, what is it? Why? b) Is there a dominant strategy for Large? If so, what is it? Why? c) What is the likely pair of decisions? What payoff will each receive?
The El Dorado Star is the only newspaper in El Dorado, New Mexico. Certainly, the Star competes with The Wall Street Journal, USA Today, and the New York Times for national news reporting, but the Star offers readers stories of local interest, such as local news, weather, high-school sporting events, and so on. The El Dorado Star faces the revenue and cost schedules shown in the spreadsheet that follows:
A template for the spreadsheet is provided in the Course Materials. You may download my template or create your own. Since we are using dollars and cents, be sure to go out two decimal places on your calculations. Add columns to show, respectively, marginal cost (MC), marginal revenue (MR), and total profit.
Two firms, Small and Large, compete by
a) Is there a dominant strategy for Small? If so, what is it? Why?
b) Is there a dominant strategy for Large? If so, what is it? Why?
c) What is the likely pair of decisions? What payoff will each receive?
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