Answered: price differentials.

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter5: Elasticity Of Demand And Supply

Section: Chapter Questions

Problem 1.1P: (Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of...

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What can you say about the price, with and without price discrimination

Transcribed Image Text:20:19 81 freelantion.com/myaccount/ 3 The pencil market is controlled by two firms: AAA Pencil Company and BBB Manufacturing. The structure of the market makes secret price cutting impossible. Each firm announces a price at the beginning of the time period and sells pencils at the price for the duration of the period. There is very little brand loyalty among pencil buyers so that each firm's demand is highly elastic. Each firm's prices are thus very sensitive to inter-firm price differentials. The two firms must choose between a high and low price strategy for the coming period. Profits (measured in thousands of Rands) for the two firms under each price strategy are given in the payoff matrix below. AAA - low price AAA - high price BBB - low price 60, 60 250, -20 BBB – high price -20, 250 130, 130

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