In Problem 10, suppose that each firm has a $10 million direct sales budget to allocate between
Question:
In Problem 10, suppose that each firm has a $10 million direct sales budget to allocate between the two markets. Again, revenues in the markets are split in proportion to direct sales dollars spent.
a. Create a three-entry spreadsheet to find firm A's total revenue if it spends $7 million in market I (and the remainder in market II) while firm B spends $6 million in market I. Which firm earns the greater total revenue?
b. Use the spreadsheet optimizer to find firm A's optimal spending split when firm B's split is $6 million-$4 million.
c. Find firm A's optimal spending splits, if firm B spends $5 million, $6 million, $6.25 million, $9 million, or $9.5 million in market I. What is the symmetric equilibrium of this spending game? Provide an intuitive explanation for the equilibrium.
Step by Step Answer:
Managerial Economics
ISBN: 978-1118808948
8th edition
Authors: William F. Samuelson, Stephen G. Marks