Answered: Explain why it could still be…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose you manage a large company’s marketing department and are responsible for deciding whether or not to advertise in the Super Bowl. Your team of analysts estimate that for each advertisement, your firm would generate $6 million in additional revenue for the company. It cost $7 million to run a 30-second advertisement. Therefore, your company would expect to lose $1 million in profit for each advertisement.

Explain why it could still be worthwhile to purchase an advertisement, even though you know in advancethat your company would lose $1.5 million in profit

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In a game theory payoff matrix. Your company (A) and a major competitor (B) havetwo potential strategies: to advertise or to not advertise during the Super Bowl. The payoffs in each cell represent the change in firm profits from advertising.

How would you create payoffs in each cell such that the Nash equilibrium is that both firms advertise despite having a higher profit if neither firm advertised

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