Suppose that Camel and Marlboro are the only two firms that sell cigarettes. The following payoff matrix shows the profit (in millions of dollars) thateach company will earn depending on whether or not it advertises.For example, the upper-right cell shows that if Camel advertises and Marlboro doesn't advertise, Camel will make a profit of $10 million, and Marlborowill make a profit of -$2 million. Assume this is a simultaneous game and that Camel and Marlboro are both profit-maximizing firms.MarlboroAdvertise Don't AdvertiseAdvertise5, 510, -2CamelDon't Advertise-2, 108, 8Fill in the following table by calculating Camel's profits depending on whether Marlboro advertises.MarlboroAdvertiseDon't AdvertiseCamelAdvertisemillionmillionDon't AdvertisemillionmillionSuppose that both firms start off not advertising. If the firms act independently, Camel will chooseadvertise, and Marlboro will chooseadvertise. If the firms decide to collude, Camel will chooseadvertise, and Marlboro will chooseadvertise.Suppose that the government steps in and bans cigarette advertising for all firms. This willthe firms.

There are two firms, i.e., Camel and Malboro which sell cigarettes. If camel advertise and Marlboro…

Suppose that Camel and Marlboro are the only two firms that sell cigarettes. The following payoff matrix shows the profit (in millions of dollars) that each company will earn depending on whether or not it advertises. For example, the upper-right cell shows that if Camel advertises and Marlboro doesn't advertise, Camel will make a profit of $10 million, and Marlboro will make a profit of -$2 million. Assume this is a simultaneous game and that Camel and Marlboro are both profit-maximizing firms. Marlboro Advertise Don't Advertise Advertise 5,5 10, -2 Camel Don't Advertise 2, 10 8, 8

Suppose that Camel and Marlboro are the only two firms that sell cigarettes. The following payoff matrix shows the profit (in millions of dollars) that each company will earn depending on whether or not it advertises. For example, the upper-right cell shows that if Camel advertises and Marlboro doesn't advertise, Camel will make a profit of $10 million, and Marlboro will make a profit of -$2 million. Assume this is a simultaneous game and that Camel and Marlboro are both profit-maximizing firms. Marlboro Advertise Don't Advertise Advertise 5,5 10, -2 Camel Don't Advertise 2, 10 8, 8

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter15: Strategic Games

Section: Chapter Questions

Problem 3MC

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Suppose two companies, Apples and Dell, are a competing duopoly. If both companies charge the high price, they each earn $700 million in economic profit. If both companies charge the low price, they each earn $500 million in economic profit. If one company charges a high price and the other a low price, the company charging the higher price earns $450 million in economic profit and the company charging the lower price earns $800 million in economic profit. 1. What is the Nash equilibrium? Select all possible answers from the answer list. 2. Thinking back to your answer for the Nash equilibrium, can firms do better than the outcome you identified? Explain.
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