Rival Response Instructions: Enter your responses as a whole number. Indicate a
ID: 1112762 • Letter: R
Question
Rival Response
Instructions: Enter your responses as a whole number. Indicate a negative response with a (-) negative sign.
(a) If the probability of rivals matching a price reduction is 97 percent, what is the expected payoff to a price cut?
$
(b) If the probability of rivals reducing price even though you don’t is 4 percent, what is the expected payoff to not reducing price?
$
Rival Response
Your Company's Action Reduce Price Don’t Reduce Price Reduce Price Loss = $800 Gain = $50,000 Don’t Reduce Price Loss = $6,000 No Loss or GainExplanation / Answer
(a) If the probability of rivals matching a price reduction is 97 percent, what is the expected payoff to a price cut?
This is given by Expected payoff = 97% x -800 + 3% x 50000 = 724
(b) If the probability of rivals reducing price even though you don’t is 4 percent, what is the expected payoff to not reducing price?
This is given by Expected payoff = 4% x -6000 + 96% x 0 = -240
Here we experience a loss.
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