To advertise or not to advertise 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 ________   .   If Dairy King doesn't advertise, Creamland makes a higher profit if it chooses __________   .   Suppose that both firms start off not advertising. If the firms act independently, what strategies will they end up choosing?   ____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.   _____Both firms will choose to advertise.     Again, suppose that both firms start off not advertising. If the firms decide to collude, what strategies will they end up choosing?   ____Creamland will choose to advertise and Dairy King will choose not to advertise.   ____Both firms will choose to advertise.   ____Both firms will choose not to advertise.   ____Creamland will choose not to advertise and Dairy King will choose to advertise.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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To advertise or not to advertise

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 ________   .
 
If Dairy King doesn't advertise, Creamland makes a higher profit if it chooses __________   .
 
Suppose that both firms start off not advertising. If the firms act independently, what strategies will they end up choosing?
 
____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.
 
_____Both firms will choose to advertise.
 
 
Again, suppose that both firms start off not advertising. If the firms decide to collude, what strategies will they end up choosing?
 
____Creamland will choose to advertise and Dairy King will choose not to advertise.
 
____Both firms will choose to advertise.
 
____Both firms will choose not to advertise.
 
____Creamland will choose not to advertise and Dairy King will choose to advertise.
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