Course Ma gopoly (Mobile-Enabled) ed AssignmentRead Cha Due Sunday 11.12.17 at 1
ID: 1106714 • Letter: C
Question
Course Ma gopoly (Mobile-Enabled) ed AssignmentRead Cha Due Sunday 11.12.17 at 11 45 ttempts Keep the Highest: 16 S. To advertise or not to advertise Suppose that Expresso and Beantown are the only two frms that sell coffee. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Beantown Advertise Doesnt Advertise Advertise 10, 10 18, 2 11, 11 Expresso Doesnt Advertise 2,18 For example, the upper right cell shows that if Expresso advertises and Beantown doesn't advertise, Expresso will make a profit of $18 million, and Beantown will make a profit of $2 million. Assume this is a simultaneous game and that Expresso and Beantown are both profit-maximizing firms. million if Beantown advertises and a profit of s million if Beantown does Ir Expresso decides to advertise, it will earn a profit of not advertise. If Expresso decides not to advertise, it will earn a profit ofs million "Beantown advertises and a profit oft Jmilion if Beantown does not advertise. Ir Beantown advertises, Expresso makes a higher profit if it chooses Beantown doesn't advertise, Expresso makes higher profit if it chooses Suppose that both firms start off not advertising. If the firms act independently, what strategies will they end up choosing? O Both firms will choose not to advertise. O Expresso will choose to advertise and Beantown will choose not to advertise. O Both firms will choose to advertise. bpresso will choose fot to advertise and Beantown wil choose to advertise. Again, suppose that both firms start off not advertising. If the firms decide to collude, what strategies will they end up choosing? O Expresso will choose not to advertise and Beantown will choose to advertise. O Both firms will choose to advertise. O Both firms will choose not to advertise. O Expresso will choose to advertise and Beantown will choose not to advertise.Explanation / Answer
if expresso advertise it will earn $10 million if beantown advertise and $18 million if he doesnot advertise
if expresso not advertise he will earn $2 million if beantown advertise and $11 million if he does not.
if beantown advertise expresso make higher profit if he also advertise (10)
if beantown doesnot advertise expresso makes higher profit if he choses advertise (18)
#both firm start up not advertising ,if they act freely they will end up advertising because its nash equilibrium.hence correct answer is
iii)both will choose to advertise
#if they collude both will end not advertising because they will have better payoff (11,11) collusion mate both better off.hence correct answer is
iii)both firm will choose not to advertise