If grocery store 2 sets a low price, what price should grocery store 1 set? What will grocery store 1's payoff equal?
To maximize profit, grocery store 1 should also set a low price when grocery store 2 sets a low price. By setting a low price, store 1 can attract more customers and increase their profit. When store 1 sets a low price, its payoff will be 3 units per week.
Maximizing Profit by Setting a Low Price
Setting the right price for a gallon of milk is crucial for both grocery stores to attract customers and maximize profit. In this scenario, if grocery store 2 decides to set a low price for milk, grocery store 1 should also follow suit and set a low price.
Reasoning behind Setting a Low Price:
When store 2 sets a low price, it becomes imperative for store 1 to set a low price as well. By doing so, store 1 can stay competitive and attract more customers who are looking for affordable milk options. This strategy can lead to an increase in sales volume and ultimately result in higher profits for store 1.
Grocery Store 1's Payoff:
Referring to the provided payoff table, if grocery store 2 sets a low price, and store 1 also sets a low price, the payoff for store 1 will be 3 units per week. This means that by setting a low price, store 1 will earn a profit of 3 units per week.
In conclusion, setting a low price when store 2 sets a low price is the optimal strategy for grocery store 1 to maximize its profit. By attracting more customers through competitive pricing, store 1 can enhance its sales and revenue potential in the long run.