Consider two firms competing in a Cournot industry. One firm-Acer- is contemplating
an investment in a new marketing project. This new project will result in efficiencies
that will lower its variable costs of marketing. Acer’s competitor, Dell, does not have
the resources to undertake a similar marketing project. Acer’s corporate financial
planning staff has studied the proposed investment and reports that at current output
levels, the present value of the cost savings from the investment is less than the cost of
the project, but just barely so. Now, suppose that Acer hires you as a consultant. What
would be your advice, invest in this new marketing project or not? Explain your answer
by reaction curves diagram.
Two professors, Wang and Lee, in the same department know they can each get a return
of 12 points in students’ teaching evaluation if both of them push students hard to learn.
If one pushes students hard, while the other gives students easy time and good grades,
the easy-pass professor can get 18 points in teaching evaluation, while the other can
only get 2 points. If both professors try to give easy time and good grades to students,
they each get 8 points in teaching evaluations. Assume that the points of teaching
evaluation are positively related to professor’s promotion and salary raise. Construct a
payoff matrix for the professors that capture the essence of the decision of professor
Wang and Lee to give hard or easy time to students. What strategy do you expect the
professors to adopt at equilibrium? Explain.
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