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: Beantown Advertise Doesn't Advertise Advertise 9, 9 15, 3 Expresso Doesn't Advertise 3, 15 11, 11 For example, the upper right cell shows that if Expresso advertises and Beantown doesn't advertise, Expresso will make a profit of $15 million, and Beantown will make a profit of $3 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 $ million if Beantown advertises and a profit of $ million if Beantown does not advertise. If Expresso decides not to advertise, it will earn a profit of $ million if Beantown advertises and a profit of $ million if Beantown does not advertise. If Beantown advertises, Expresso makes a higher profit if it chooses If Beantown doesn't advertise, Expresso makes a 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 Expresso will choose not to advertise and Beantown will choose to advertise. O Expresso will choose to advertise and Beantown will choose not to advertise. O Both firms will choose to advertise. O Both firms will choose not 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 Both firms will choose to advertise. O Expresso will choose not to advertise and Beantown will choose to advertise. Expresso will choose to advertise and Beantown will choose not to advertise. O Both firms will choose not 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: Beantown Advertise Doesn't Advertise Advertise 9, 9 15, 3 Expresso Doesn't Advertise 3, 15 11, 11 For example, the upper right cell shows that if Expresso advertises and Beantown doesn't advertise, Expresso will make a profit of $15 million, and Beantown will make a profit of $3 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 $ million if Beantown advertises and a profit of $ million if Beantown does not advertise. If Expresso decides not to advertise, it will earn a profit of $ million if Beantown advertises and a profit of $ million if Beantown does not advertise. If Beantown advertises, Expresso makes a higher profit if it chooses If Beantown doesn't advertise, Expresso makes a 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 Expresso will choose not to advertise and Beantown will choose to advertise. O Expresso will choose to advertise and Beantown will choose not to advertise. O Both firms will choose to advertise. O Both firms will choose not 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 Both firms will choose to advertise. O Expresso will choose not to advertise and Beantown will choose to advertise. Expresso will choose to advertise and Beantown will choose not to advertise. O Both firms will choose not to advertise.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
100%
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:
Beantown
Advertise Doesn't Advertise
Advertise
9, 9
15, 3
Expresso
Doesn't Advertise
3, 15
11, 11
For example, the upper right cell shows that if Expresso advertises and Beantown doesn't advertise, Expresso will make a profit of $15 million, and
Beantown will make a profit of $3 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 $
million if Beantown advertises and a profit of $
million if Beantown does not
advertise.
If Expresso decides not to advertise, it will earn a profit of $
million if Beantown advertises and a profit of $
million if Beantown does
not advertise.
If Beantown advertises, Expresso makes a higher profit if it chooses
If Beantown doesn't advertise, Expresso makes a 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 Expresso will choose not to advertise and Beantown will choose to advertise.
O Expresso will choose to advertise and Beantown will choose not to advertise.
O Both firms will choose to advertise.
O Both firms will choose not 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 Both firms will choose to advertise.
O Expresso will choose not to advertise and Beantown will choose to advertise.
O Expresso will choose to advertise and Beantown will choose not to advertise.
O Both firms will choose not to advertise.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education