Business, 11.05.2021 17:10 rubixcube4786434

Firm A is considering to raise or lower the price of its product. Firm B produces the substitute for the product of Firm A. Firm B has not entered in the industry yet. Suppose Firm B is making its decision to enter the industry or not in the meantime Firm A is making its decision to raise or lower the price. Given the following outcome and payoff matrix, please answer questions what are the outcomes with the payoffs of (1, 10) Firm B
Enter Don’t Enter
Firm A Raise price (1, 10) (4, 5)
Lower price (2, 6) (3, 4)

1. Which of the following is the feasible strategy set of Firm B?

a. {Raise price, Lower price}
b. {Enter, Don’t Enter}
c. {Raise price, Enter}
d. {Raise price, Don’t Enter}

2. Which of the following outcome with the payoffs of (2, 6)?

a. Firm A raises the price of its product and Firm B enters the industry.
b. Firm A raises the price of its product and Firm B does not enter the industry.
c. Firm A lowers the price of its product and Firm B enters the industry.
d. Firm A lowers the price of its product and Firm B does not enter the industry.

3. If Firm A lowers the price and Firm B does not enter the industry, what are the payoffs of the two firms?

a. Firm A gets 1 and Firm B gets 10.
b. Firm A gets 4 and Firm B gets 5.
c. Firm A gets 2 and Firm B gets 6.
d. Firm A gets 3 and Firm B gets 4.

Answers: 2

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