Suppose that two firms, Frankencakes and Thinley's, are the only sellers of crepes in some hypothetical market. The following payoff matrix profit (in millions of dollars) earned by each company depending on whether or not chooses to advertise Thinley's Advertise Doesn't Advertise Advertise Frankencakes Doesn't Advertise 10, 10 2,18 18,2 11, 11 For example, the lower left cell of the matrix shows that if Thinley's advertises and Frankencakes does not advertise, Thinley's will make a pr million, and Frankencakes will make a profit of $2 million. Assume this is a simultaneous game and that Frankencakes and Thinley's are both maximizing firms. If Frankencakes chooses to advertise, it will earn a profit of s not advertise. million if Thinley's advertises and a profit of million if Thinley If Frankencakes chooses not to advertise, it will earn a profit of s does not advertise. million if Thinley's advertises and a profit of million if Th If Thinley's advertises, Frankencakes makes a higher profit if it chooses If Thinley's doesn't advertise, Frankencakes makes a higher profit if it chooses Suppose that both firms start off by deciding not to advertise. If the firms act independently, what strategies will they end up choosing? Frankencakes will choose not to advertise and Thinley's will choose to advertise. Frankencakes will choose to advertise and Thinley's will choose not to advertise. Both firms 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? Frankencakes will choose not to advertise and Thinley's will choose to advertise. O Both firms will choose to advertise. 0 Frankencakes will choose to advertise and Thinley's will choose not to advertise. Both firms will choose not to advertise.
Suppose that two firms, Frankencakes and Thinley's, are the only sellers of crepes in some hypothetical market. The following payoff matrix profit (in millions of dollars) earned by each company depending on whether or not chooses to advertise Thinley's Advertise Doesn't Advertise Advertise Frankencakes Doesn't Advertise 10, 10 2,18 18,2 11, 11 For example, the lower left cell of the matrix shows that if Thinley's advertises and Frankencakes does not advertise, Thinley's will make a pr million, and Frankencakes will make a profit of $2 million. Assume this is a simultaneous game and that Frankencakes and Thinley's are both maximizing firms. If Frankencakes chooses to advertise, it will earn a profit of s not advertise. million if Thinley's advertises and a profit of million if Thinley If Frankencakes chooses not to advertise, it will earn a profit of s does not advertise. million if Thinley's advertises and a profit of million if Th If Thinley's advertises, Frankencakes makes a higher profit if it chooses If Thinley's doesn't advertise, Frankencakes makes a higher profit if it chooses Suppose that both firms start off by deciding not to advertise. If the firms act independently, what strategies will they end up choosing? Frankencakes will choose not to advertise and Thinley's will choose to advertise. Frankencakes will choose to advertise and Thinley's will choose not to advertise. Both firms 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? Frankencakes will choose not to advertise and Thinley's will choose to advertise. O Both firms will choose to advertise. 0 Frankencakes will choose to advertise and Thinley's will choose not to advertise. Both firms will choose not to advertise.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Suppose that two firms, Frankencakes and Thinley's, are the only sellers of crepes in some hypothetical market. The following payoff matrix
profit (in millions of dollars) earned by each company depending on whether or not chooses to advertise
Thinley's
Advertise Doesn't Advertise
Advertise
Frankencakes
Doesn't Advertise
10, 10
2,18
18,2
11, 11
For example, the lower left cell of the matrix shows that if Thinley's advertises and Frankencakes does not advertise, Thinley's will make a pr
million, and Frankencakes will make a profit of $2 million. Assume this is a simultaneous game and that Frankencakes and Thinley's are both
maximizing firms.
If Frankencakes chooses to advertise, it will earn a profit of s
not advertise.
million if Thinley's advertises and a profit of
million if Thinley
If Frankencakes chooses not to advertise, it will earn a profit of s
does not advertise.
million if Thinley's advertises and a profit of
million if Th
If Thinley's advertises, Frankencakes makes a higher profit if it chooses
If Thinley's doesn't advertise, Frankencakes makes a higher profit if it chooses
Suppose that both firms start off by deciding not to advertise. If the firms act independently, what strategies will they end up choosing?
Frankencakes will choose not to advertise and Thinley's will choose to advertise.
Frankencakes will choose to advertise and Thinley's will choose not to advertise.
Both firms 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?
Frankencakes will choose not to advertise and Thinley's will choose to advertise.
O Both firms will choose to advertise.
0
Frankencakes will choose to advertise and Thinley's will choose not to advertise.
Both firms will choose not to advertise.
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