Managerial Economics 7

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The discussion requires a minimum of 300 words, 3 scholarly sources, including the textbook. Make sure that you use APA style with your references. Under no circumstances use any direct quotes. Any directly quoted or copied material will result in a zero for the assignment. Let’s be sure to write it in own work 100% and give appropriately when using someone’s else work.

Reference for textbook attached:

Thomas, C. R., & Maurice, S. C. (2010). Managerial economics: Foundations of business analysis and strategy (10th ed.). New York: McGraw-Hill/Irwin.

1 Thomas Schelling, an expert on nuclear strategy and arms control, observed in his book The Strategy of Conflict, “The power to constrain an adversary depends upon the power to bind oneself.” Explain this statement using the concept of strategic commitment. Use an example from either your own business experience or economics-related research in your explanation.

1,500 word count and there is a total of 8 questions each (not including in-text citation and references as the word count), a minimum of 4 scholarly sources are required in APA format. For the 4 scholarly sources, one from the textbook that’s posted below and the other two from an outside source . Let’s be sure to write it in own work 100% and give appropriately when using someone’s else work. Under no circumstances use any direct quotes. Any directly quoted or copied material will result in a zero for the assignment.

Reference for textbook attached:

Thomas, C. R., & Maurice, S. C. (2010). Managerial economics: Foundations of business analysis and strategy (10th ed.). New York: McGraw-Hill/Irwin.

Hints

1. The instructions that mention the bold type and regular type for the game on the Unit 7 Complete are incorrect. As you may have determined already, Tampa is in regular type and St. Petersburg is in bold.

2. The first part of your Unit 7 Complete is a game very similar to the one you solved for Unit 6. This assignment will go to the next step of Game Theory where you will identify the Nash Equilibrium. Keep in mind that the Nash Equilibrium will be the strategy in which neither firm can be made better off by moving. There is a document under Course Materials to walk you through this part of the assignment.

3. The second part of the assignment will ask you to analyze a situation in which “cheating” is a possibility. You will need to calculate the payoffs for each situation, but it has been simplified with an r=0. This means that you do not have to account for time. In other words, you do not have to worry about the exponent.

General Instructions

The Tampa Tribune and the St. Petersburg Times compete for readers in the Tampa Bay market for newspapers. Recently, both newspapers considered changing the prices they charge for their Sunday editions. Suppose they considered the following payoff table for making a simultaneous decision to charge either a low price of $0.50 or a high price of $1.00. Tampa’s profits are shown in bold. St. Petersburg’s profits are in regular type.

For questions 1 – 10, choose the correct answer to fill in the blanks. Use the suggested words in parentheses after each blank. A detailed explanation must be given to defend each choice.

Tampa Tribune

Low Price

High Price

A.

B.

Low price

$120,000

$54,000

St Pete Times

$100,000

$120,000

C.

D.

High Price

$90,000

$88,000

$54,000

$90,000

1 Tampa Tribune’s dominant strategy is ____________ (low price, high price, it has no dominant strategy).

2 St. Petersburg Times’ dominant strategy is ____________ (low price, high price, it has no dominant strategy).

3 Tampa Tribune’s dominated strategy is ____________ (low price, high price, it has no dominant strategy).

4 St. Petersburg Times’ dominated strategy is ____________ (low price, high price, it has no dominant strategy).

5 This newspaper pricing decision ________ (is, is not) a Prisoners’ Dilemma.

6 Is there a Nash Equilibrium in this game? If so, which cell(s) is/are the Nash? Is/are the Nash Dominant Strategy Equilibrium?

7 Which cell(s) is/are strategically stable?

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.

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