Suppose Yamaha and Hero must decide whether to make a new style of side-impact airbags standard...

Suppose Yamaha and Hero must decide whether to make a new style of side-impact airbags standard equipment on all models. Side-impact airbags raise the price of each automobile by $1,000. The company will earn profits of $2 billion each if they make the airbags. If neither company adopts the technology, each company will earn $3.5 billion. If one company acquire the technology and the other does not, the adopting company will earn a profit of $4.5 billion and the non-acquiring company will earn $0.5 billion.

a. If a decision is to be made for Hero, should the side-impact airbags standard equipment be made?

b. If Yamaha and Hero were able to cooperate, is this expected to bring the same outcome?

Expert Solution

a) If Yamaha chooses to make the side impact airbags standard equipment, then Hero would also choose to make the side impact airbags standard equipment.

If Yamaha chooses not to make the side impact airbags standard equipment, then also Hero would also choose to make the side impact airbags standard equipment.

So, we can see that Hero has a dominant strategy to make the side impact airbags standard equipment.

So, if a decision is to be made, Hero should choose to make the side impact airbags standard equipment.

b) If Yamaha and Hero were able to cooperate then the outcome would not be same. If both the companies, Yamaha and hero cooperate with each other, they would look to make a decision that would maximise their total profits. So, the companies would decide not to make the side impact airbag is standard equipment as if both the companies do so, they will be having a greater profits.

IF YOU FIND THIS ANSWER HELPFUL, PLEASE UP VOTE.

Rahul Sunny answered 1 year ago

By law, all new cars must be equipped with airbags on both the driver’s side and...

By law, all new cars must be equipped with airbags on both the driver’s side and the passenger’s side. There is concern, however, whether the airbags pose a danger to children seated on the passenger side. In a study of 55 deadly accidents among the people killed by the explosive force of airbags, 35 were children seated on the passenger side. Let p be the actual proportion of fatal motor vehicle accidents involving children seated on the passenger side. Construct...

3. Gabriela Manufacturing must decide whether to insource (make) or outsource (buy) a new toxin-free carpet...

3. Gabriela Manufacturing must decide whether to insource (make) or outsource (buy) a new toxin-free carpet cleaner that works with its Miracle Carpet Cleaning Machine. If it decides to insource the product, the process would incur $300,000 of annual fixed costs and $1.50 per unit of variable costs. If it is outsourced, a supplier has offered to make it for an annual fixed cost of $120,000 and a variable cost of $2.25 per unit in variable costs. (a) Construct a...

A firm must decide whether to make a component part in-house or to contract it out...

A firm must decide whether to make a component part in-house or to contract it out to an independent supplier. Manufacturing the part requires a nonrecoverable investment in specialized assets. The most efficient suppliers are located in countries with currencies that many foreign exchange analysts expect to appreciate substantially over the next decade. What are the pros and cons of (a) manufacturing the component in-house and (b) outsourcing manufacturing to an independent supplier? Which option would you recommend and why?...

Suppose a company needs to decide whether to make or to buy a product. The product...

Suppose a company needs to decide whether to make or to buy a product. The product can be purchased from the market at a price of 19 TL per unit. Alternatively, it can be manufactured in-house, in which case a machine has to be purchased for 120,000 TL to produce the part. The variable (material and labor) costs will be 10 TL/unit. This product will be needed for the next 5 years, at which time, the machine can be solved...

You are trying to decide whether to make an investment of $498.7million in a new technology...

You are trying to decide whether to make an investment of $498.7million in a new technology to produce Everlasting Gobstoppers. There is a 61% chance that the market for these candies will produce profits of $98.9 million annually, a(n) 22% chance the market will produce profits of$50.1 million, and a(n) 17% chance that there will be no profits. The size of the market will become clear one year from now. Currently, the cost of capital of the project is 11.47%per...

Maplewood Company must decide whether to make or buy some of its components. The costs of...

Maplewood Company must decide whether to make or buy some of its components. The costs of producing 59,600 switches for its generators are as follows. Direct materials $30,396 Variable overhead $47,680 Direct labour 42,912 Fixed overhead 57,216 Instead of making the switches at an average cost of $2.99 ($178,204 ÷ 59,600), the company has an opportunity to buy the switches at $2.79 per unit. If the company purchases the switches, all the variable costs and one-third of the fixed costs...

Wilma Company must decide whether to make or buy some of its components. The costs of...

Wilma Company must decide whether to make or buy some of its components. The costs of producing 60,200 switches for its generators are as follows. Direct materials $29,900 Variable overhead $45,700 Direct labor $25,990 Fixed overhead $76,000 Instead of making the switches at an average cost of $2.95 ($177,590 ÷ 60,200), the company has an opportunity to buy the switches at $2.67 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs...

Oriole Company must decide whether to make or buy some of its components. The costs of...

Oriole Company must decide whether to make or buy some of its components. The costs of producing 60,200 switches for its generators are as follows. Direct materials $29,900 Variable overhead $45,700 Direct labor $25,990 Fixed overhead $76,000 Instead of making the switches at an average cost of $2.95 ($177,590 ÷ 60,200), the company has an opportunity to buy the switches at $2.67 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs...

Wildhorse Company must decide whether to make or buy some of its components. The costs of...

Wildhorse Company must decide whether to make or buy some of its components. The costs of producing 68,900 switches for its generators are as follows. Direct materials $30,200 Variable overhead $44,600 Direct labor $46,455 Fixed overhead $82,000 Instead of making the switches at an average cost of $2.95 ($203,255 ÷ 68,900), the company has an opportunity to buy the switches at $2.66 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs...

Investment and Work Effort: Suppose that Lisa must decide whether or not to invest $40,000 in...

Investment and Work Effort: Suppose that Lisa must decide whether or not to invest $40,000 in a new computer system for her company. If she buys the system, she must also hire a technician, Bart. The effect on the firm’s revenues depends on Bart’s effort. If Bart puts in high effort (H) in working with the new system, then revenues increase by $120,000. If Bart puts in low effort (L) then revenues increase by only $50,000. Bart has disutility of...

Question