Table 14-1 Increase advertising budget Godrickporter's (G) Choices Increase advertising budget G: $16,000 profit S: $8,000 profit Leave advertising budget as is G: $12,000 profit S: $15,000 profit Star Connections' (S) Choices Leave advertising budget as is G: $8.000 profit S: $10,000 profit G: $6,000 profit S: $12.000 profit Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow. Each firm must decide on whether to increase its advertising spending to compete for customers. Table 14-1 shows the payoff matrix for this advertising game. Refer to Table 14-1. Let's suppose the game starts with each firm adhering to its original budget so that Godrickporter earns a profit of $6,000 and Star Connections earns a profit of $12,000. Is there an incentive for any one firm to increase its advertising budget? No, neither firm has an incentive to raise its advertising spending. Yes, Star Connections has an incentive to increase its advertising budget, but Godrickporter does not. Yes, Godrickporter has an incentive to increase its advertising budget, but Star Connections does not. Yes, both firms have an incentive to raise their advertising budgets.
Table 14-1 Increase advertising budget Godrickporter's (G) Choices Increase advertising budget G: $16,000 profit S: $8,000 profit Leave advertising budget as is G: $12,000 profit S: $15,000 profit Star Connections' (S) Choices Leave advertising budget as is G: $8.000 profit S: $10,000 profit G: $6,000 profit S: $12.000 profit Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow. Each firm must decide on whether to increase its advertising spending to compete for customers. Table 14-1 shows the payoff matrix for this advertising game. Refer to Table 14-1. Let's suppose the game starts with each firm adhering to its original budget so that Godrickporter earns a profit of $6,000 and Star Connections earns a profit of $12,000. Is there an incentive for any one firm to increase its advertising budget? No, neither firm has an incentive to raise its advertising spending. Yes, Star Connections has an incentive to increase its advertising budget, but Godrickporter does not. Yes, Godrickporter has an incentive to increase its advertising budget, but Star Connections does not. Yes, both firms have an incentive to raise their advertising budgets.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Table 14-1
Godrickporter's (G) Choices
Increase
advertising
budget
Leave
advertising
budget as is
G: $12,000 profit
S: $15,000 profit
Star
Connections'
(S) Choices
Increase advertising
budget
G: $16,000 profit
S: $8,000 profit
Leave advertising
budget as is
G: $8,000 profit
S: $10,000 profit
G: $6,000 profit
S: $12,000 profit
Godrickporter and Star Connections are the only two airport shuttle and limousine rental service
companies in the mid-sized town of Godrick Hollow. Each firm must decide on whether to increase
its advertising spending to compete for customers. Table 14-1 shows the payoff matrix for this
advertising game.
Refer to Table 14-1. Let's suppose the game starts with each firm adhering to its original budget so
that Godrickporter earns a profit of $6,000 and Star Connections earns a profit of $12,000. Is
there an incentive for any one firm to increase its advertising budget?
No, neither firm has an incentive to raise its advertising spending.
Yes, Star Connections has an incentive to increase its advertising budget, but Godrickporter does not.
Yes, Godrickporter has an incentive to increase its advertising budget, but Star Connections does not.
Yes, both firms have an incentive to raise their advertising budgets.
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