Ann Taylor and Gap are two clothing companies that must decide on the leading color palette for next season. Their sales depend on the choice of color they make as well as the choice their competitor makes. Their salaries are summarized in the payoff matr

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07.07.2022 - 18:59

Ann Taylor and Gap are two clothing companies that must decide on the leading color palette for next season. Their sales depend on the choice of color they make as well as the choice their competitor makes. Their salaries are summarized in the payoff matr

Question:

		Gap
		Orange	Pink
	Orange	Gap: $120M AT: $100M	Gap: $50M AT: $70M
Ann Taylor
Ann Taylor	Pink	Gap: $70M AT: $50M	Gap: $100M AT: $120M

Ann Taylor and Gap are two clothing companies that must decide on the leading color palette for next season. Their sales depend on the choice of color they make as well as the choice their competitor makes. Their salaries are summarized in the payoff matrix above. Using the payoff matrix, which of the following is correct:

A. The Nash Equilibrium is for one company to choose pink while the other company chooses orange.

B. The only Nash Equilibrium is for both companies to choose pink.

C. The only Nash Equilibrium is for both companies to choose orange.

D. There are two Nash Equilibria: either both companies choose pink or both choose orange.

Answers (0)

Diana April 14, 2023 в 21:17

Based on the information given, the incremental analysis for Anna's basketweaving studio is as follows:

	Sell (Basic Kit)	Process Further (Stage 2 Kit)	Net Income Increase (Decrease)
Sales per unit	$20	$28	$8
Costs per unit
Direct materials	$8	$0	-$8
Direct labor	$0	$9	$9
Total	$8	$9	$1
Net income per unit	$12	$19	$7

The basic kit has a sales price of $20 and costs Anna $8 to produce, resulting in a profit of $12 per unit. The Stage 2 kit has a higher sales price of $28, but incurs additional costs for direct labor of $9, resulting in a profit of $19 per unit. The incremental analysis shows that Anna should focus on producing and selling the Stage 2 kit as it generates a higher net income per unit.

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