Answer to Question #135726 in Macroeconomics for Bryan Burgos

Question

3.3. Situation 3: Firm Y chooses a low-price strategy while Firm X maintains a high-price strategy. Result: Compared to Situation 1, Firm Y has an incentive to cut prices because it will earn $________ million and Firm X will earn $________. Compared to Situation 1, Firm Y will earn $________ million more in profit and Firm X will earn $________ million less in profit. Together, the firms will earn $________ million in profit, which is $________ less than in Situation 1.
3.4. Situation 4: Each firm chooses a low-price strategy. Result: Each firm will earn $________ million in profit for a total of $________ million for the two firms. This total is $________ less than in Situation 1.

Answer 1

Situation 3: Firm Y chooses a low-price strategy while Firm X maintains a high-price strategy. Result: Compared to Situation 1, Firm Y has an incentive to cut prices because it will earn $ 250 million and Firm X will earn $ 50. Compared to Situation 1, Firm Y will earn $ 50 million more in profit and Firm X will earn $ 150 million less in profit. Together, the firms will earn $ 300 million in profit, which is $ 100 less than in Situation 1.

Situation 4: Each firm chooses a low-price strategy. Result: Each firm will earn $ 50 million in profit for a total of $ 100 million for the two firms. This total is $ 300 less than in Situation 1.