Question

In: Economics

Use the following game to answer questions 8-10. Be sure to show all of your math...

Use the following game to answer questions 8-10. Be sure to show all of your math step-by-step.

Alcoa and Kaiser, duopolists in the market for primary aluminum ingot, choose prices of their 500 foot rolls of sheet aluminum on the first day of the month. The following payoff table shows their monthly payoffs resulting from the pricing decisions they can make.

Alcoa

High price

Low price

Kaiser

High price

A

$400, $500

B

$175, $575

Low price

C

$525, $200

D

$273, $250

Suppose Alcoa and Kaiser repeat their pricing decision on the first day of every month. Suppose they have been cooperating for the past few months, but now the manager at Kaiser is trying to decide whether to cheat or to continue cooperating. Kaiser’s manager believes Kaiser can get away with cheating for two months, but he also believes that Kaiser would be punished for the next two months after cheating. After punishment, Kaiser’s manager expects the two firms would return to cooperation. Kaiser’s manager ignores the time-value of money and does not discount future benefits or costs.

8. What is the monthly gain to Kaiser from cheating? What is the present value of the benefit from cheating for the two months of cheating?

9. What is the monthly cost of punishment to Kaiser? What is the present value of the cost of cheating for the two months of punishment?

10. Will Kaiser cooperate or cheat? Explain.

11. Suppose you were asked to manage a golf course that was currently charging a uniform price. Would you suggest that the course continue with this price plan or switch to a two-part pricing plan? Explain your decision and how you would choose the optimal price.

Expert Solution

*Answer:

Alcoa and Kaiser have been cooperating for the past two months - both have been setting high prices, leading to a payoff of:

Kaiser = 400$

Alcoa = 500$

8. If Kaiser cheats, they will set low prices, leading to the below payoffs:

Kaiser = 525$

Alcoa = 200$

Monthly gain to Kaiser = 525 - 400 = 125$

Present value of benefit from cheating for 2 months = 125$*2 = 250$ (Ignoring time value of money concept)

9. If Kaiser cheats, they will get punishment for the next two months, i.e. Alcoa will also set low prices, leading to below payoffs:

Kaiser = 273$

Alcoa = 250$

Monthly loss to Kaiser = 400 - 273 = 127$ (loss)

Present value of loss from cheating for 2 months = 127$*2 = 254$ (Ignoring time value of money concept)

10. Present of loss (254$) is more than the present value of benefit (250$) in case of cheating, So Kaiser will continue to cooperate.

***Please please like this answer so that I can get a small benefit. Please support me. Thankyou***

Rahul Sunny answered 7 months ago

Please answer the following questions and show all work and make sure I can read your...

Please answer the following questions and show all work and make sure I can read your writing please. 1) Ethan went on a 10 day fishing trip. The number of small mouth bass caught and released by Ethan each day was as follows. Day 1 2 3 4 5 6 7 8 9 10 # of Fish 9 24 8 9 5 8 9 10 8 10 A. Find the mean, median, and mode B. Find the range, variance, and...

Use the following information to answer the next three questions. Show ALL your work! Consider the...

Use the following information to answer the next three questions. Show ALL your work! Consider the cash flows from two mutually exclusive projects: Cash Flow Year Project A Project B 0 -$420,000 -$420,000 1 $150,000 $390,000 2 $230,000 $110,000 3 $321,000 $140,000 The appropriate discount rate is 11.7%. -Calculate the net present value (NPV) for both projects, and determine which project should be accepted based on NPV. Round both NPVs to the nearest dollar. -Calculate the internal rate of return...

Answer the following questions. Show all work leading to your answer. On a network with an...

Answer the following questions. Show all work leading to your answer. On a network with an IP address of 140.133.28.72 and a subnet mask of 255.248.0.0, what is the network ID? You have decided to create 254 subnets on your Class B network. What subnet mask will you use to accomplish this? What is the maximum number of hosts you can assign to any single subnet? Your workstation's IP address is 10.35.88.12, and your supervisor's workstation's IP address is 10.35.91.4....

Read each question carefully, make sure to answer all questions are answered and show your work:...

Read each question carefully, make sure to answer all questions are answered and show your work: 5. Nast stores has derived the following consumer credit-scoring model after years of data collect Y=(0.20 x Employment) + (0.4 x Homeowner) + (0.3 x Cards) Employment = 1 if employed part-time, and 0 if unemployed Cards= 1 if presently has 1-5 credit cards, 0 otherwise Nast determines that a score of at least 0.70 indicates a very good credit risk, and it extends...

As you answer these questions, be sure that you EXPLAIN YOUR ANSWERS IN DETAIL AND SHOW...

As you answer these questions, be sure that you EXPLAIN YOUR ANSWERS IN DETAIL AND SHOW YOUR CALCULATIONS. Remember you are showing off how much you know about economics and one or two sentences shows me you don’t know very much. Question One: Fiscal Policy Assume the United States economy has the following: • GDP is $18,500 billion down from $19,350 billion nine months ago. • Unemployment is at 6.8% up from 4.2% nine months ago. • Inflation is stable...

Use the following information to answer the questions in this quiz. Please show your work by...

Use the following information to answer the questions in this quiz. Please show your work by submitting a Word, Excel, or JPEG file in the "Project 2 Drop Box". INFORMATION OLD MACHINE: Original Purchase Price $ 550,000.00 Original Life 10 YEARS Remaining Life 5 YEARS Straight line depreciation in use Salvage Value $ 50,000.00 Current Fair Market Value $ 260,000.00 INFORMATION NEW MACHINE A: Purchase Price $895,000.00 Estimated Life 5 YEARS Use Straight Line Depreciation Method Estimated Salvage Value...

A. Answer both of the following questions thoroughly. Show all your graphical and mathematical work in...

A. Answer both of the following questions thoroughly. Show all your graphical and mathematical work in order to get partial credit. Limit your decimal places to one thousandths. 1. The following equations describe the economy in Rouge Terra. Use them to answer the succeeding questions. C= 300+0.7YD IP= 700 G= 600 T= 400+0.1Y X= 450 M= 150+0.03Y a. Determine the AEP function for Rouge Terra. b. Determine the equilibrium level of income for Rouge Terra, mathematically, and show it graphically...

Answer the following questions and use Excel to show your work. The mean time required to...

Answer the following questions and use Excel to show your work. The mean time required to complete a certain type of construction project is 52 weeks with a standard deviation of 3 weeks. Answer questions 4–7 using the preceding information and modeling this situation as a normal distribution. 4. What is the probability of the completing the project in no more than 52 weeks? a) 0.25 b) 0.50 c) 0.75 d) 0.05 5. What is the probability of the completing...

Answer the following questions and use Excel to show your work. A student has an important...

Answer the following questions and use Excel to show your work. A student has an important exam coming up and is contemplating not studying for the exam in order to attend a party with his friends. The student must earn a minimum score of 70% on the exam in order to successfully maintain his desired GPA. Suppose the student knows in advance that the exam will consist of 20 multiple-choice questions with 4 possible answers for each question. Answer questions...

Answer the following questions and use Excel to show your work. Customers arrive at a supermarket...

Answer the following questions and use Excel to show your work. Customers arrive at a supermarket check-out counter with an average arrival rate of 9 customers per hour. Answer questions 8–10 using the preceding information and modeling this situation as a Poisson distribution. 8. What is the probability of less than 5 customers arriving at the supermarket check-out counter in a given 1-hour period? a) 0.054 b) 0.446 c) 0.359 d) 0.612 9. What is the probability of exactly 12...