Suppose Philips and Toshiba Are the First Companies to Introduce

question 138

Essay

Suppose Philips and Toshiba are the first companies to introduce digital versatile disk (DVD) machines to the market. Studies by the firms suggest that consumers who purchase consumer electronics are very brand-loyal. To capture future loyalties, each firm will attempt to maximize its initial market share, for one time only, by setting prices. An economist has estimated the initial market share of each firm under different pricing scenarios. Her results are captured in the following payoff matrix: a. Given this scenario, if you were in charge of pricing at Philips, what price would you charge? Explain.
b. What market share would you anticipate as a result of your pricing strategy? Explain.

Understand the concept of marginal cost and how it affects decision-making in production.

Grasp the concept of marginal benefit and its importance in optimizing resource allocation.

Recognize the role of learning effects on marginal costs.

Apply economic principles in assessing optimal quantities of activity based on marginal analysis.

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