2. Given the information would you predict that Sony or Microsoft would want to reduce console prices by $100. Use a 2 by 2 shot simultaneous game to analyze this situation. Assume Nintendo is just looking in but does not act. 3. Assume that demand curves are all linear. Calculate the own price point elasticities of demand implied by the data at prices of $299 and $399 for both Sony and Microsoft. Are your answers consistent with your understanding of short run profit maximization for firms with market power? Exhibit 1 Prices and Projected Annual Sales Volumes for Sony PlayStation 3 and Microsoft Xbox 360 Elite PS3 Price Xbox 360 Price PS3 Xbox 360 $299 $299 $399 $399 $299 $399 $299 $399 Projected Number of Units Sold (millions) 11.25 11.75 8.25 8.75 Projected Number of Units Sold (millions) 11.5 7.0 12.5 8.0 Exhibit 2 Sony PlayStation 3 Production Costs per Unit (US dollars) Units Produced (in millions) Production Labor Materials & Parts Overhead Distribution Per Unit Total Cost 168 155 8.25 8.75 9.25 9.75 10.25 10.75 11.25 11.75 12.25 12.75 98 80 67 55 45 38 | 32 | 28 26 28 161 145 143 141 140 140 141 142 66.67 62.86 59.46 56.41 53.66 51.16 48.89 46.81 44.90 43.14 40 40 40 40 30 $372.67 $343.86 $321.46 $296.41 $281.66 $270.16 $260.89 $244.81 $241.90 $243.14 40 40 40 30 30 Exhibit 3 Microsoft Xbox 360 Elite Production Costs per Unit (US dollars) abor 44 Units Produced (in millions) Production Labor Materials & Parts Overhead Distribution Per Unit Total Cost 7.00 7.50 8.00 8.50 9.00 9.50 10.00 10.50 78 69 62 56 52 48 46 45 180 172 167 161 156 153 149 147 64.29 60.00 56.25 52.94 50.00 47.37 42.86 | 50 50 50 40 40 40 40 40 $372.29 $351.00 $335.25 $309.94 $298.00 $288.37 $280.00 $274.86 11.00 11.50 12.00 12.50 44 44 44 146 145 144 144 40.91 39.13 37.50 36.00 40 30 $270.91 $258.13 $255.50 $254.00 45.00 30 30 2. Given the information would you predict that Sony or Microsoft would want to reduce console prices by $100. Use a 2 by 2 shot simultaneous game to analyze this situation. Assume Nintendo is just looking in but does not act. 3. Assume that demand curves are all linear. Calculate the own price point elasticities of demand implied by the data at prices of $299 and $399 for both Sony and Microsoft. Are your answers consistent with your understanding of short run profit maximization for firms with market power? Exhibit 1 Prices and Projected Annual Sales Volumes for Sony PlayStation 3 and Microsoft Xbox 360 Elite PS3 Price Xbox 360 Price PS3 Xbox 360 $299 $299 $399 $399 $299 $399 $299 $399 Projected Number of Units Sold (millions) 11.25 11.75 8.25 8.75 Projected Number of Units Sold (millions) 11.5 7.0 12.5 8.0 Exhibit 2 Sony PlayStation 3 Production Costs per Unit (US dollars) Units Produced (in millions) Production Labor Materials & Parts Overhead Distribution Per Unit Total Cost 168 155 8.25 8.75 9.25 9.75 10.25 10.75 11.25 11.75 12.25 12.75 98 80 67 55 45 38 | 32 | 28 26 28 161 145 143 141 140 140 141 142 66.67 62.86 59.46 56.41 53.66 51.16 48.89 46.81 44.90 43.14 40 40 40 40 30 $372.67 $343.86 $321.46 $296.41 $281.66 $270.16 $260.89 $244.81 $241.90 $243.14 40 40 40 30 30 Exhibit 3 Microsoft Xbox 360 Elite Production Costs per Unit (US dollars) abor 44 Units Produced (in millions) Production Labor Materials & Parts Overhead Distribution Per Unit Total Cost 7.00 7.50 8.00 8.50 9.00 9.50 10.00 10.50 78 69 62 56 52 48 46 45 180 172 167 161 156 153 149 147 64.29 60.00 56.25 52.94 50.00 47.37 42.86 | 50 50 50 40 40 40 40 40 $372.29 $351.00 $335.25 $309.94 $298.00 $288.37 $280.00 $274.86 11.00 11.50 12.00 12.50 44 44 44 146 145 144 144 40.91 39.13 37.50 36.00 40 30 $270.91 $258.13 $255.50 $254.00 45.00 30 30