Question : Figure 14-3 Rainbow Writer (RW) a small online company selling a : 1387886

 

Figure 14-3

Rainbow Writer (RW) is a small online company selling a highly rated software package for printing color labels directly onto CDs. The firm currently earns a profit of $2 million per year selling its package exclusively on its Web site. Odeon, the producer of the most popular software package for editing and burning CDs and DVDs has expressed interest in bundling Rainbow Writer’s product into its own package. Odeon expects that bundling would further boost its sales and allow it to sell the new bundled product at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 14-3 shows the decision tree for the Rainbow Writer-Odeon bargaining game.

 

8) Refer to Figure 14-3.  How will Rainbow Writer respond to Odeon’s two possible offers?

A) Rainbow Writer will reject either offer.

B) Rainbow Writer will only accept an offer of $30 per copy of the software package.

C) Rainbow Writer will only accept an offer of $40 per copy of the software package.

D) Rainbow Writer will accept either offer.

 

 

9) Refer to Figure 14-3.  What is the equilibrium outcome in this game, and is this a subgame-perfect equilibrium?

A) Odeon’s offer of $40 per copy of the software package is accepted, and this is a subgame-perfect equilibrium.

B) In the equilibrium, Odeon offers $40 per copy of the software package and is accepted, but this is not a subgame-perfect equilibrium.

C) In the equilibrium, Odeon offers $30 per copy of the software package and is rejected, and this is a subgame-perfect equilibrium.

D) There is no equilibrium in this game.

 

Figure 14-4

 

 

Rainbow Writer (RW) is a small online company selling a highly rated software package for printing color labels directly onto CDs. The firm currently earns a profit of $2 million per year selling its package exclusively on its Web site. Odeon, the producer of the most popular software package for editing and burning CDs and DVDs, has expressed interest in bundling Rainbow Writer’s product into its own package. Odeon expects that bundling would further boost its sales and allow it to sell the new bundled product at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 14-4 shows the decision tree for the Rainbow Writer-Odeon bargaining game.

 

10) Refer to Figure 14-4.  How will Rainbow Writer respond to Odeon’s two possible offers?

A) Rainbow Writer will reject either offer.

B) Rainbow Writer will only accept an offer of $30 per copy of the software package.

C) Rainbow Writer will only accept an offer of $40 per copy of the software package.

D) Rainbow Writer will accept either offer.

 

11) Refer to Figure 14-4.  What is the equilibrium outcome in this game and is this a subgame-perfect equilibrium?

A) In the equilibrium, neither offer is accepted as Rainbow Writer holds out for a better deal. The two rejection outcomes are subgame-perfect equilibria.

B) In the equilibrium, Odeon offers $40 per copy of the software package and is accepted, but this is not a subgame-perfect equilibrium.

C) Either offer of $30 or $40 per copy of the software package is accepted, and these two equilibria are subgame-perfect equilibria.

D) Either offer of $30 or $40 per copy of the software package is accepted, but these are not are subgame-perfect equilibria.

 

 

12) Refer to Figure 14-4.  In a real world situation involving Rainbow Writer and Odeon, what scenario below might permit Rainbow Writer to rationally refuse an offer from Odeon of $40 per copy of the software package?

A) Odeon is also negotiating with Swift Colors, Rainbow Writer’s chief rival.

B) Odeon’s competitors are also interested in bundling Rainbow Writer’s software.

C) Odeon hires a software developer to begin developing its own proprietary color labeling software.

D) Odeon is considering new distribution outlets for its products.

 

 

13) In many business situations one firm will act first, and then other firms will respond. To help analyze these types of situations, economists use

A) retaliation games.

B) follow-the-leader-games.

C) sequential games.

D) bargaining games.

 

14) All of the following are ways by which existing firms can deter the entry of new firms into an industry except

A) continuously producing new and improved products.

B) earning less than maximum profit.

C) advertising products aggressively.

D) threatening to raise prices.

 

 

15) Sequential games are used to analyze

A) firms that are subject to the prisoner’s dilemma.

B) cartels.

C) second-price auctions.

D) situations in which one firm acts and other firms respond.

 

 

16) A sequential game can be used to analyze whether a retail firm should build a large store or a small store in a city, when the correct choice depends on whether a competing firm will build a new store in the same city. Which of the following is used to analyze this type of decision?

A) a decision tree

B) a decision matrix

C) a sequential matrix

D) an either-or graph

 

17) Decision trees are commonly used to illustrate how firms make business decisions that depend on the actions of rival firms. A decision tree has boxes that contain points that represent when firms must make the decisions contained in the boxes. What are these points called?

A) option points

B) decision nodes

C) either-or terminals

D) decision options

 

 

18) When Wal-Mart decides to build a new retail store in a town, it will decide to build a large store rather than a small store if the large store is expected to earn a greater economic profit. What other motive would Wal-Mart have for choosing to build a large store?

A) A larger store will help Wal-Mart maintain its position as the leading retail company in the world more than a smaller store would.

B) A larger store will give Wal-Mart greater political influence in the community.

C) A larger store may deter entry into the town by a rival firm.

D) Because of economies of scale, the average total cost of production is less for a larger store than a smaller store.

 

 

19) Sequential games are often used to analyze which two types of business strategies?

A) whether to invest in research and development and whether to offer employees an early retirement package

B) deciding to merge with another firm and deciding how much to spend on an advertising campaign

C) deciding to end production of an unprofitable product and deciding to shut down temporarily

D) deterring entry by another firm and bargaining between firms