5. To advertise or not to advertise Suppose that Expresso and Beantown are the only two firms 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: Expresso Beantown Advertise Doesn't Advertise Advertise 10,10 Doesn't Advertise 2, 18 18,2 11, 11 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. If Expresso decides to advertise, it will earn a profit of s advertise. If Expresso decides not to advertise, it will earn a profit of s not advertise. million if Beantown advertises and a profit of s million if Beantown advertises and a profit of s If Beantown advertises, Expresso makes a higher profit if it chooses If Beantown doesn't advertise, Expresso makes a higher profit if it c not to advertise Expresso will choose to advertise and Beantown will choose not to advertise. Both firms will choose not to advertise. Both firms will choose to advertise. million if Beantown does not to advertise Suppose that both firms start off not advertising. If the firms act independency, whet strategies will they end up choosing? million if Beantown does Expresso will choose to advertise and Beantown will choose not to advertise. Both firms will choose not to advertise. Both firms will choose to advertise. Expresso will choose not to advertise and Beantown will choose to advertise. Suppose that both firms start off not advertising. If the firms act independently, what strategies will they end up choosing? Again, suppose that both firms start off not advertising. If the firms decide to collude, what strategies will they end up choosing? Both firms will choose not to advertise. Expresso will choose not to advertise and Beantown will choose to advertise. Expresso will choose to advertise and Beantown will choose not to advertise. Both firms will choose to advertise.
5. To advertise or not to advertise Suppose that Expresso and Beantown are the only two firms 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: Expresso Beantown Advertise Doesn't Advertise Advertise 10,10 Doesn't Advertise 2, 18 18,2 11, 11 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. If Expresso decides to advertise, it will earn a profit of s advertise. If Expresso decides not to advertise, it will earn a profit of s not advertise. million if Beantown advertises and a profit of s million if Beantown advertises and a profit of s If Beantown advertises, Expresso makes a higher profit if it chooses If Beantown doesn't advertise, Expresso makes a higher profit if it c not to advertise Expresso will choose to advertise and Beantown will choose not to advertise. Both firms will choose not to advertise. Both firms will choose to advertise. million if Beantown does not to advertise Suppose that both firms start off not advertising. If the firms act independency, whet strategies will they end up choosing? million if Beantown does Expresso will choose to advertise and Beantown will choose not to advertise. Both firms will choose not to advertise. Both firms will choose to advertise. Expresso will choose not to advertise and Beantown will choose to advertise. Suppose that both firms start off not advertising. If the firms act independently, what strategies will they end up choosing? Again, suppose that both firms start off not advertising. If the firms decide to collude, what strategies will they end up choosing? Both firms will choose not to advertise. Expresso will choose not to advertise and Beantown will choose to advertise. Expresso will choose to advertise and Beantown will choose not to advertise. Both firms will choose to advertise.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:5. To advertise or not to advertise
Suppose that Expresso and Beantown are the only two firms 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:
Expresso
Advertise
Doesn't Advertise
Beantown
Advertise
10, 10
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.
Doesn't Advertise
18, 2
11, 11
If Expresso decides to advertise, it will earn a profit of S
advertise.
If Expresso decides not to advertise, it will earn a profit of S
not advertise.
O
O
million if Beantown advertises and a profit of s
If Beantown advertises, Expresso makes a higher profit if it chooses
If Beantown doesn't advertise, Expresso makes a higher profit if it cnot to advertise
to advertise
Suppose that both firms start off not advertising. If the firms act independency, whet strategies will they end up choosing?
Expresso will choose to advertise and Beantown will choose not to advertise.
Both firms will choose not to advertise.
Both firms will choose to advertise.
million if Beantown advertises and a profit of 5
Suppose that both firms start off not advertising. If the firms act independently, what strategies will they end up choosing?
Both firms will choose not to advertise.
Both firms will choose to advertise.
Expresso will choose to advertise and Beantown will choose not to advertise.
Expresso will choose not to advertise and Beantown will choose to advertise.
Both firms will choose not to advertise.
million if Beantown does not
Again, suppose that both firms start off not advertising. If the firms decide to collude, what strategies will they end up choosing?
million if Beantown does
Expresso will choose not to advertise and Beantown will choose to advertise.
Expresso will choose to advertise and Beantown will choose not to advertise.
Both firms will choose to advertise.
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