Does Firm 1 have a dominant strategy? a)No b)Yes. Advertise c)Yes. Do not advertiseDoes Firm 2 have a dominant strategy? a)No b)Yes. Advertise c)Yes. Do not advertise ### Game Theory: Advertising Competition#### Two firms compete by advertising. The profit matrix is given as follows:| | Firm 1 Advertise | Firm 1 Do not advertise ||---------------|-------------------|------------------------|| **Firm 2 Advertise** | (6, 4) | (1, 3) || **Firm 2 Do not advertise** | (5, 3) | (0, 2) |#### Explanation:This table represents a payoff matrix for two firms that are deciding whether to advertise. The rows represent Firm 2's strategies, and the columns represent Firm 1's strategies. The first number in each cell is the payoff (profit) for Firm 2, and the second number is the payoff for Firm 1.1. **Both Firms Advertise (Cell: (6, 4))** - If both firms choose to advertise, Firm 2 earns a profit of 6, and Firm 1 earns a profit of 4. 2. **Firm 2 Advertises, Firm 1 Does Not (Cell: (1, 3))** - If Firm 2 decides to advertise and Firm 1 decides not to advertise, Firm 2 earns a profit of 1, while Firm 1 earns a profit of 3. 3. **Firm 2 Does Not Advertise, Firm 1 Advertises (Cell: (5, 3))** - If Firm 2 does not advertise and Firm 1 advertises, Firm 2 earns a profit of 5, and Firm 1 earns a profit of 3. 4. **Neither Firm Advertises (Cell: (0, 2))** - If neither firm advertises, Firm 2 earns a profit of 0, and Firm 1 earns a profit of 2.

Dominant strategy is the strategy that gives best payoff given the strategy of other player

Answered: Does Firm 1 have a dominant strategy?…

Does Firm 1 have a dominant strategy? a)No b)Yes. Advertise c)Yes. Do not advertise Does Firm 2 have a dominant strategy? a)No b)Yes. Advertise c)Yes. Do not advertise

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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