ECON Assignment Example | Topics and Well Written Essays - 1000 words

ECON - Assignment Example Before purchasing goods using GBP, the consumers must exchange the dollars for pounds hence increased demand for pounds. The increase in demand for pounds will lead to an increased in the quantity of US dollars supplied to the foreign country and a decrease in the supply of pounds. The branded-drug maker offered to pay the generic entrant an amount of $10 million as a way of reducing inter-product cannibalization that would have ensued if the generic drug entered the market/industry. Paying off the generic entrant was a way of ensuring the generic drug stays far away from the branded drugs. With the generic drugs being much cheaper than the branded drugs, the branded drug maker was sure that consumers would go the generic brands and his chances of earning profit would be slim. Paying off the generic drug maker acted as a way of acquiring the substitute good and this means he would increase his profits. In this case, the firm should follow the strategy of inter temporal price discrimination where the price of the product varies with the time the product is bought. Therefore, the firm should sell the iPhone to technophiles at $400 now and sell it to normal people at $250 later. The technophiles are high value consumers in this case while the others are low value consumers. The normal people or low value customers will not purchase the iPhone unless the price is reduced and so the optimal pricing scheme is for the firm to first concentrate on the technophiles. The optimal pricing scheme will also include the production of two versions of iPhone so that the high value customers can get the expensive and high quality one while the low value customers will purchase the low quality depending on the price. There is dominant strategy portrayed by either player. Therefore, the equilibrium will be a mixed nash. If any of the players randomizes their selection of action by going 50% one way, then the other player will