EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
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Chapter 12.3, Problem 2.1MQ
To determine
The strategic effects would come into play as advertising persuades
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5. To advertise or not to advertise
Suppose that two firms, Frankencakes and Thinley's, are the only sellers of crepes in some hypothetical market. The following payoff matrix gives the
profit (in millions of dollars) earned by each company depending on whether or not it chooses to advertise:
Frankencakes
Thinley's
Advertise Doesn't Advertise
Advertise
9,9
Doesn't Advertise 3,15
For example, the lower left cell of the matrix shows that if Thinley's advertises and Frankencakes does not advertise, Thinley's will make a profit of $15
million, and Frankencakes will make a profit of $3 million. Assume this is a simultaneous game and that Frankencakes and Thinley's are both profit-
maximizing firms.
advertise
If Frankencakes chooses to advertise, it will earn a profit of 5
15,3
11.11
If Frankencakes chooses not to advertise, it will earn a profit of S
not advertise.
Both firms will choose to advertise
O Both firms will choose not to advertise.
million if Thinley's advertises and a profit of…
18. Refer to Figure 18-1. If the shop charges $150 per repair, then what is the value of the marginal product of the second mechanic?
19. Refer to Figure 18-1. What is the marginal product of the third mechanic?
20. Why are the actions of firms interdependent in an oligopoly market but not in a monopolistically competitive market?
3. There are three identical firms in the market research industry. The demand is 1 – Q, where Q
= q1 + q2 + q3. The marginal cost is zero.
a. Compute the Cournot equilibrium
b. Show that if two of the three firms merge (transforming the industry into a duopoly), the
profit of these firms decreases. Explain why and use a table to show the changes.
c. Show the result on profits if all three firms were to merge
Chapter 12 Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
Ch. 12.2 - Prob. 1TTACh. 12.2 - Prob. 2TTACh. 12.2 - Prob. 1MQCh. 12.2 - Prob. 2MQCh. 12.2 - Prob. 1.1TTACh. 12.2 - Prob. 2.1TTACh. 12.2 - Prob. 1.1MQCh. 12.3 - Prob. 1MQCh. 12.3 - Prob. 2MQCh. 12.3 - Prob. 1TTA
Ch. 12.3 - Prob. 2TTACh. 12.3 - Prob. 1.1MQCh. 12.3 - Prob. 2.1MQCh. 12.3 - Prob. 1.1TTACh. 12.3 - Prob. 2.1TTACh. 12.4 - Prob. 1TTACh. 12.4 - Prob. 2TTACh. 12.5 - Prob. 1MQCh. 12.5 - Prob. 2MQCh. 12.5 - Prob. 1TTACh. 12.5 - Prob. 2TTACh. 12.6 - Prob. 1MQCh. 12.6 - Prob. 2MQCh. 12 - Prob. 1RQCh. 12 - Prob. 2RQCh. 12 - Prob. 3RQCh. 12 - Prob. 4RQCh. 12 - Prob. 5RQCh. 12 - Prob. 6RQCh. 12 - Prob. 7RQCh. 12 - Prob. 8RQCh. 12 - Prob. 9RQCh. 12 - Prob. 10RQCh. 12 - Prob. 12.1PCh. 12 - Prob. 12.2PCh. 12 - Prob. 12.3PCh. 12 - Prob. 12.4PCh. 12 - Prob. 12.5PCh. 12 - Prob. 12.6PCh. 12 - Prob. 12.7PCh. 12 - Prob. 12.8PCh. 12 - Prob. 12.9PCh. 12 - Prob. 12.10P
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- . What is the Nash equilibrium in this advertising war?a) Coke advertises; Pepsi does not advertise b) Pepsi advertises; Coke does not advertise c) neither of them advertises d) both of them advertise Explain the reasons for your answer? Was any other equilibrium position possible? advertise do not advertise pepsi-advertise coke profit=$50B coke profit =$20B PEPSI profit =$50B pepsi profit =$100B do not advertise coke profit =$100B coke profit =$80B pepsi profit =$20B PEPSI PROFIT =$80 Barrow_forward25. When monopolistically competitive firms advertise they hope to _________ and __________. When monopolistically competitive firms advertise they hope to _________ and __________. decrease market share; increase average total cost increase market share; increase average total cost increase market share; decrease average total cost decrease market share; decrease average total costarrow_forwardRestaurant B Advertise Don't Advertise 25 (A) Paragraph V 25 (B) 20 (A) 60 (B) Restaurant A Advertise a) Does Restaurant A have a dominant strategy? If yes, what is it? Explain. a) Does Restaurant B have a dominant strategy? If yes, what is it? Explain. B I U ✓ A 60 (A) 20 (B) 50 (A) 50 (B) GO Don't Advertise + < 11.arrow_forward
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