Question 3 Suppose the table below represents the payoff matrix for two firms in duopoly, who are "noncooperative." Which one of the following statements is true? Firm A Advertise Firm B Firm B Advertise No Advertising Low profit High profit Low profit Loss No Loss Moderate profit Firm A Advertising High profit Moderate profit If both firms choose the same strategy they will both earn a loss. Firm A will choose to advertise because it guarantees a high profit. The firms will collude. Choosing not to advertise would make Firm B better off, regardless of what Firm A does, than would choosing to advertise. Choosing to advertise would make Firm A better off, regardless of what Firm B does, than would choosing not to advertise.

Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter10: Monopolistic Competition And Oligopoly
Section: Chapter Questions
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Question 3
Suppose the table below represents the payoff matrix for two firms in duopoly, who are
"noncooperative." Which one of the following statements is true?
Firm A Advertise
Firm B
Firm B
Advertise
No Advertising
Low profit
High profit
Low profit
Loss
No
Loss
Moderate profit
Firm A
Advertising
High profit
Moderate profit
If both firms choose the same strategy they will both earn a loss.
Firm A will choose to advertise because it guarantees a high profit.
The firms will collude.
Choosing not to advertise would make Firm B better off, regardless of what Firm A does, than would
choosing to advertise.
Choosing to advertise would make Firm A better off, regardless of what Firm B does, than would
choosing not to advertise.
Transcribed Image Text:Question 3 Suppose the table below represents the payoff matrix for two firms in duopoly, who are "noncooperative." Which one of the following statements is true? Firm A Advertise Firm B Firm B Advertise No Advertising Low profit High profit Low profit Loss No Loss Moderate profit Firm A Advertising High profit Moderate profit If both firms choose the same strategy they will both earn a loss. Firm A will choose to advertise because it guarantees a high profit. The firms will collude. Choosing not to advertise would make Firm B better off, regardless of what Firm A does, than would choosing to advertise. Choosing to advertise would make Firm A better off, regardless of what Firm B does, than would choosing not to advertise.
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