The following table shows two firms in a single-stage game. Each firm makes its decision withoutknowledge of the other firm's decision. The payoffs for each firm represent economic profits, andeach firm strictly prefers more economic profit than less. In the Nash equilibrium of this game, Pepsiearns a profit of_and Coca-Cola earns a profit ofPepsiAdvertiseDoes Not Advertise$50 million$37.5 millionAdvertise $50 million$75 millionCoca-Cola$75 million$67.5 millionDoes NotAdvertise $37.5 million$67.5 million$67.5 million; $67.5 milliond. $75 million; $37.5 millionа.b. $30 million; $30 million$37.5 million; $75 millionе.$50 million; $50 millionс.

The strategy where the player would tend to continue with the strategy chosen by them while knowing the strategy of the opponent as they tend to have no incentive for changing their course is known as Nash equilibrium. Both the firms in the market would be making $ 50 million profit each at the nash equilibrium. This is due to the reason that any firm that tends to deviate from the strategy and does not advertise in the market would be found to be making a loss. This implies that Pepsi would be earning a profit of $ 50 million and Coca-Cola would be earning a profit of $50 million. This would make all the other options incorrect except e. Hence, the correct option is e.

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Economics

The following table shows two firms in a single-stage game. Each firm makes its decision without knowledge of the other firm's decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. In the Nash equilibrium of this game, Pepsi earms a profit of_ and Coca-Cola earms a profit of _ Pepsi Advertise Does Not Advertise $50 million $37.5 million Advertise $50 million $75 million Coca-Cola $75 million $67.5 million Does Not Advertise $37.5 million $67.5 million a. $67.5 million; $67.5 million d. $75 million; $37.5 million b. $30 million; $30 million c. $37.5 million; $75 million е. $50 million; $50 million

The following table shows two firms in a single-stage game. Each firm makes its decision without knowledge of the other firm's decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. In the Nash equilibrium of this game, Pepsi earms a profit of_ and Coca-Cola earms a profit of _ Pepsi Advertise Does Not Advertise $50 million $37.5 million Advertise $50 million $75 million Coca-Cola $75 million $67.5 million Does Not Advertise $37.5 million $67.5 million a. $67.5 million; $67.5 million d. $75 million; $37.5 million b. $30 million; $30 million c. $37.5 million; $75 million е. $50 million; $50 million

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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