Competitor's Price
ABC Industries Is About to Launch a New

question 64

Essay

Competitor's Price
ABC Industries is about to launch a new product and must decide to set the price of the product at either high,medium,or low.The annual payoff for ABC will depend on the price set on a competing product that will be introduced in the near future.The table below shows the annual payout for each combination of prices.
Competitor's Price
$$\begin{array} { | l | c | c | c | } \hline \text { AEC Price } & \text { High } & \text { Medium } & \text { Law } \\\hline \text { High } & \$ 60,000 & \$ 25,000 & - \$ 20,000 \\\hline \text { Medium } & \$ 35,000 & \$ 46,000 & - \$ 4,000 \\\hline \text { Lan } & \$ 18,000 & \$ 12,000 & \$ 8,000 \\\hline\end{array}$$
-What price should ABC choose using the maximax criterion?

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Definitions:

Market Price

The prevailing market price at which you can buy or sell an asset or service.

Cumulative Preferred Stock

A type of preferred stock that entitles shareholders to receive dividends in arrears before common stockholders can be paid dividends.

Common Stock

A form of corporate equity ownership, a type of security that represents ownership in a corporation and a claim on part of the corporation's profits or losses.

Dividends Per Share

Dividends per share is a measure reflecting the amount of declared dividends for each share of common stock, revealing how much a company pays out in dividends relative to its share price.