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situated on opposite corn… Show more Burger King and McDon

Paper help Economics situated on opposite corn… Show more Burger King and McDon

Economics

situated on opposite corn… Show more Burger King and McDon

situated on opposite corn… Show more Burger King and McDonald’s Scenario Burger King and McDonald%u2019s are situated on opposite corners of a downtown intersection. Burger King and McDonald%u2019s compete on the basis of the prices they set for their burger, fry, and soda combination meals. Every Monday, Burger King and Mc- Donald%u2019s simultaneously choose their combo meal prices, which will remain in effect for the rest of the week. Burger King and McDonald%u2019s consider only two possible prices: a low price of $3.50 or a high price of $4.50 for their combination meals. The weekly profit from each of the four possible combinations of decisions is given in the following table: Burger King%u2019s price Burger King%u2019s price Low ($3.50) High ($4.50) Mac Donald%u2019s price Low ($3.50) A $3,000, $5,500 B $6,500, $5,000 Mac Donald%u2019s price High ($4.50) C $2,000, $9,000 D $5,000, $8,000 Payoffs in dollars of weekly profit. Payoffs in dollars of weekly profit. Explain the statements below. a. The pricing decision facing Burger King and McDonald%u2019s is a prisoners%u2019 dilemma. b. Cooperation between Burger King and McDonald%u2019s occurs in cell D of the payoff table. The non-cooperative outcome occurs in cell A. c. Cell B represents cheating by McDonald%u2019s, while cell C represents cheating by Burger King. d. If Burger King and McDonald%u2019s make their pricing decision just one time, they will likely end up in cell A. e.Burger King can credibly threaten to punish McDonald%u2019s with a retaliatory price cut. f.McDonald%u2019s can credibly threaten to punish Burger King with a retaliatory price cut. • Show less

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