Question

13.) Use the following payoff table for Hardaway Corporation and Paxton Industries. These two firms must make simultaneous pricing decisions. They can choose low, medium, or high prices.

		Paxton Industries
		Low	Medium	High
Hardaway Corp.	Low	A	B	C
		$30, $30	$45, $20	$32, $20
	Medium	D	E	F
		$20, $45	$40, $40	$45, $35
	High	G	H	I
		$15, $48	$38, $52	$50, $50
		Payoffs in thousands of dollars of monthly profits.

After the first round of eliminating dominated strategies for both firms,

Multiple Choice

• no more dominated strategies remain for further elimination.

• setting a medium price for Hardaway Corporation can next be eliminated in a second round.

• setting a high price for Hardaway Corporation can next be eliminated in a second round.

• no other dominated strategies can be eliminated for Paxton Industries.

• both "setting a high price for Hardaway Corporation can next be eliminated in a second round" and "no other dominated strategies can be eliminated for Paxton Industries".

14.) Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be:

Demand: Q_d= 10,000 − 10,000P + 1.0M

Supply: Q_s= 80,000 + 10,000P − 4,000P₁

where Q is quantity, P is the price of the product, M is income, and P₁ is the input price. The manager of the perfectly competitive firm uses time-series data to obtain the following forecasted values of M and P₁ for 2021:

M̂ = $50,000 and P̂₁ =$20

The manager also estimates the average variable cost function to be

AVC = 3.0 − 0.0027Q + 0.0000009Q²

Total fixed costs will be $2,000 in 2021. The marginal cost function is

Multiple Choice

• SMC = 3.0 − 0.0027Q + 0.0000009Q²

• SMC = 3.0 − 0.00135Q + 0.00000045Q²

• SMC = 3.0Q − 0.0027Q² + 0.0000009Q³

• SMC = 3.0 − 0.0054Q + 0.0000018Q²

• None of the choices are correct.

Answer 1

13) both "setting a high price for Hardaway Corporation can next be eliminated in a second round" and "no other dominated strategies can be eliminated for Paxton Industries".

(In the first round, Paxton's high price and Hardaway Corporation's medium price will be eliminated. In the second round, none of Paxton's stratgey is dominated but Hardaway Corporation's high price is dominated and thus will be eliminated.)

14) None of the choices are correct.
(TVC = AVC*Q = (3.0 − 0.0027Q + 0.0000009Q²)Q = 3.0Q − 0.0027Q² + 0.0000009Q³
MC= d(TVC)/dQ = 3.0 - 2(0.0027Q) + 3(0000009Q²) = 3.0 − 0.0054Q + 0.0000027Q²)