Assume the following demand and supply equation for a pesticide market:
Qd = 30,000 – 5000P
Qs = 10,000P
a. Calculate the perfectly competitive industry equilibrium price and output.
b. Assume that the firms in this industry organized into a cartel. Calculate the industry output and price.
c. Compare your answers for items a and b. Briefly describe the effect that organizing into a cartel had on price and output.
KLM Company must decide whether to advertise its product or not. If its rival, Blue Corporation, decides to advertise its product, KLM will make $4 million if it advertises and $2 million if it does not advertise. If Blue Corporation does not advertise, KLM will make $5 million if it advertises and $3 million if it does not.
a. Is it possible to construct a payoff matrix? Explain.
b. Does KLM have a dominant strategy?
Miller Company managers realize that Jim’s Corporation may attempt to enter their market.
a. What steps might they take to dissuade Jim’s Corporation from entering?
b. What factors are likely to determine whether they will succeed?
c. What actions taken by Miller in the past might play an important role in influencing whether Jim’s Corporation enters or not?
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