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 KingAdvertise Doesn'tAdvertiseAdvertise10, 1018, 2CreamlandDoesn'tAdvertise2, 1811, 11For 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-maximizingfirms.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 notadvertise.If Creamland decides not to advertise, it will earn a profit of Smillion if Dairy King advertises and a profit of $million if Dairy King doesnot advertise. If Dairy King advertises, Creamland makes a higher profit if it choosesIf Dairy King doesn't advertise, Creamland makes a higher profit if it choosesSuppose that both firms start off not advertising. If the firms act independently, what strategies will they end up choosing?Both firms will choose to advertise.O Creamland will choose not to advertise and Dairy King will choose to advertise.O Creamland will choose to advertise and Dairy King will choose not 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?Creamland will choose not to advertise and Dairy King will choose to advertise.Both firms will choose to advertise.Creamland will choose to advertise and Dairy King will choose not to advertise.Both firms will choose not to advertise.

In game theory, the best response is the strategy (or strategies) which produces the most favorable…

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'tAdvertise Advertise 10, 10 18, 2 Creamland 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.

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'tAdvertise Advertise 10, 10 18, 2 Creamland 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.

Principles of Microeconomics (MindTap Course List)

8th Edition

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: Oligopoly

Section: Chapter Questions

Problem 9PA

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