A Small Regional Airline Is Considering Offering Service to the Big

question 26

Essay

A small regional airline is considering offering service to the Big City market. A large carrier already provides service to Big City. The small carrier's two strategies are: Enter Market or Do Not Enter. The large carrier's strategies are: Price Dump or Maximize Profits in the Short Run. By price dumping in the Big City market, the large carrier can force the small carrier out of business and make monopoly profits in the long-run. The long-run payoffs are presented in the payoff matrix below. Does either player have a dominant strategy? Does the game have any Nash equilibria? What is the maximin strategy of each player in the game?

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Definitions:

Subsidiary Ledger

Individual accounts with a common characteristic grouped together in a separate or secondary ledger, which is used to support a controlling account in the general ledger.

Job Cost Sheet

An account in the work in process subsidiary ledger in which the costs charged to a particular job order are recorded.

Job Order Costing

A cost accounting system in which costs are assigned to specific jobs or batches, which are often custom orders.

Job Order Cost

A cost system that assigns costs directly to a specific job or batch of product, tracking direct labor, direct materials, and overhead.