Suppose that Creamland and Dairy King are the only two firms that sell ice cream. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Dairy King Advertise Doesn’t Advertise Creamland Advertise 10, 10 18, 2 Doesn’t Advertise 2, 18 11, 11 For example, the upper right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $18 million, and Dairy King will make a profit of $2 million. Assume this is a simultaneous game and that Creamland and Dairy King are both profit-maximizing firms. If Creamland decides to advertise, it will earn a profit of_million if Dairy King advertises and a profit ofmillion if Dairy King does not advertise. If Creamland decides not to advertise, it will earn a profit of_million if Dairy King advertises and a profit of__million if Dairy King does not advertise. If Dairy King advertises, Creamland makes a higher profit if it chooses (to advertise/not to advertise) . If Dairy King doesn't advertise, Creamland makes a higher profit if it chooses (to advertise/not to advertise) . Suppose that both firms start off not advertising. If the firms act independently, what strategies will they end up choosing? -Both firms will choose to advertise. -Creamland will choose to advertise and Dairy King will choose not to advertise. -Creamland will choose not to advertise and Dairy King will choose to advertise. -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? -Both firms will choose not to advertise. -Creamland will choose to advertise and Dairy King will choose not to advertise. -Creamland will choose not to advertise and Dairy King will choose to advertise. -Both firms will choose to 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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Suppose that Creamland and Dairy King are the only two firms that sell ice cream. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises:

	Dairy King
Advertise	Doesn’t Advertise
Creamland	Advertise	10, 10	18, 2
Doesn’t Advertise	2, 18	11, 11

For example, the upper right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $18 million, and Dairy King will make a profit of $2 million. Assume this is a simultaneous game and that Creamland and Dairy King are both profit-maximizing firms.

If Creamland decides to advertise, it will earn a profit of_____million if Dairy King advertises and a profit of______million if Dairy King does not advertise.

If Creamland decides not to advertise, it will earn a profit of_______million if Dairy King advertises and a profit of______million if Dairy King does not advertise.

If Dairy King advertises, Creamland makes a higher profit if it chooses (to advertise/not to advertise) .

If Dairy King doesn't advertise, Creamland makes a higher profit if it chooses (to advertise/not to advertise) .

Suppose that both firms start off not advertising. If the firms act independently, what strategies will they end up choosing?

-Both firms will choose to advertise.

-Creamland will choose to advertise and Dairy King will choose not to advertise.

-Creamland will choose not to advertise and Dairy King will choose to advertise.

-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?

-Both firms will choose not to advertise.

-Creamland will choose to advertise and Dairy King will choose not to advertise.

-Creamland will choose not to advertise and Dairy King will choose to advertise.

-Both firms will choose to advertise.

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