Micro Business Economics Philip Morris

Question: Examine about the Micro Business Economics by Philip Morris. Answer: (1) Cigarette Advertising The benefit (result) of Philip Morris = $1 * 4 billion * [AP/(AP + AR)] AP The benefit (result) of R. J. Reynolds = $1 * 4 billion * [AR/(AP + AR)] AR There are 4 degrees of promoting: $200 million, $400 million, $600 million and $800 million. (a) The result grid for this publicizing game is: Reynolds Philip $200 million $400 million $600 million $800 million $200 million 1800 , 1800 1133.3 , 2266.7 800 , 2400 600 , 2400 $400 million 2266.67 , 1133.33 1600 , 1600 1200 , 1800 933.33 , 1866.67 $600 million 2400 , 800 1800 , 1200 1400 , 1400 1114.29 , 1485.71 $800 million 2400 , 600 1866.67 , 933.33 1485.71 , 1114.29 1200 , 1200 In the result grid, the main segment of every cell speaks to the result of Philip Morris and the subsequent segment speaks to the result of R.J. Reynolds. The adjustments are as far as million dollars. (Varian, 2009) (b) There is just a single Nash equilibria in the promoting game. It is when both Philip Morris and R.J. Reynolds are burning through $800 million dollar each on publicizing. It is the main result which is commonly valuable to both and is thus Nash equilibria. The result to each is $1200 million under the Nash Equilibria. (Pindyck and Rubinfeld, 2009) (c) When it gets infeasible for the cigarette organizations to burn through $800 million on promoting because of the administration boycott, the greatest publicizing cost will be $600 million. The subsequent result network is appeared as follows: Reynolds Philip $200 million $400 million $600 million $200 million 1800 , 1800 1133.3 , 2266.7 800 , 2400 $400 million 2266.67 , 1133.33 1600 , 1600 1200 , 1800 $600 million 2400 , 800 1800 , 1200 1400 , 1400 The Nash balance in the new promoting game is produced when both Philip Morris and R.J Reynolds burn through $600 million on publicizing. The result to each will be $1400 million. (Varian, 2009) Under the boycott, the result of both Philip Morris and R.J Reynold is $1400 million. Consequently, their result is expanding because of the boycott. In this way, they are both happier from the boycott. References: Pindyck, R. furthermore, Rubinfeld, D. (2009). Micreconomics. seventh ed. New Jersey: Prentice Hall. Varian, H. (2009). Halfway Microeconomics: A Modern Approach. eighth ed. New York: W. W. Norton Company.