Question: 18. Alpha and Beta in Technical Problem 15 repeat their pricing decision on the first day of every month. Suppose they have been cooperating for

18. Alpha and Beta in Technical Problem 15 repeat their pricing decision on the first day of every month. Suppose they have been cooperating for the past few months, but now the manager at Beta is trying to decide whether to cheat or to continue cooperating.

Beta’s manager believes Beta can get away with cheating for two months, but would be punished for the next two months after cheating. After punishment, Beta’s manager expects the two firms would return to cooperation. Beta’s manager uses a discount rate of 2 percent per month for computing present values.

a. What is the monthly (undiscounted) gain to Beta from cheating? What is the present value of the benefit from cheating?

b. What is the monthly (undiscounted) cost of punishment to Beta? What is the present value of the cost of cheating?

c. Will Beta cooperate or cheat? Explain.

d. Suppose Beta discounts future benefits and costs at a rate of 30 percent per week.

Will Beta choose cooperation or cheating?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Managerial Economics Questions!

Alpha and Beta in Technical Problem 15 repeat their pricing decision on the first day of every month. Suppose they have been cooperating for the past few months, but now the manager at Beta is trying...

Use the following game to answer questions 8-10. Be sure to show all of your math step-by-step. Alcoa and Kaiser, duopolists in the market for primary aluminum ingot, choose prices of their 500 foot...

In the pricing decision in Technical Problem 15, can Alpha make a credible threat to punish Beta with a retaliatory price cut? Can Beta make a credible threat of a retaliatory price cut? Data From...

I need your help with this: Can you please quote from the attached chapters / resource if possible? Corporations often use different costs of capital for different operating divisions. Using an...

Do you agree with the changes Johnson is making to the pricing scheme that are set to take effect August 1st? Are they enough to turn things around? ELIE OFEK JILL AVERY For the exclusive use of T....

design compufix cultural web and its main elements. base your answer on the description offered in the case study at about the time when the workshops begun (1992) Case study: Compufix Inc, by...

hi. I'm stuck with a report whose Chic Paints Ltd. and I am finding difficulty to answer some questions such as the organisations accounting system requirements including hardware and software...

6.1. Carbondale Company has the following credit policy 2/10, net 30. Carbondale also charges 1% per month interest on all accounts after 30 days. The following table shows the collection schedule of...

Below are two case studies, I want answers to the following case study CASE STUDY 1 Health Care Partners, Inc. Background Health Care Partners (HCP) was a 40-year-old company providing health care...

Average prices of standard-type apartments in Riga (EUR per sq.m.) - Average price per sq.m. Figure 1. Average prices of standard-type apartments in Riga from January 2004 to July 2007 Note that in...

Dana, Inc. provides civil engineering services. During October, its transactions included the following: Oct. 1 Paid rent for the month of October, $4,000. Oct. 4 Billed Milton Hotels $8,500 for...

5) Solve: A residential water bill is based on a flat fee of $10 plus a charge of $0.75 for each 1000 gallons of water used. Find the number of gallons of water a family can use if they want to keep...

Refer to the information for Krumple Inc.. Krumple Inc. produces aluminum cans. Production of 12-ounce cans has a standard unit quantity of 4.7 ounces of aluminum per can. During the month of April,...

Solve each of the following. After deducting 5% from a sum of money, the remainder is $4.18. What was the original sum of money?