Suppose that two firms, Lucky Bird and Full Coop, are the only sellers of seitan buffalo wings in some hypothetical market. The following payoff matrix gives the profit (in millions of dollars) earned by each company depending on whether or not it chooses to advertise: Full Coop Advertise Doesn't Advertise Lucky Bird Advertise 9, 9 15, 3 Doesn't Advertise 3, 15 11, 11 For example, the lower left cell of the matrix shows that if Full Coop advertises and Lucky Bird does not advertise, Full Coop will make a profit of $15 million, and Lucky Bird will make a profit of $3 million. Assume this is a simultaneous game and that Lucky Bird and Full Coop are both profit-maximizing firms. If Lucky Bird chooses to advertise, it will earn a profit of million if Full Coop advertises and a profit of million if Full Coop does not advertise. If Lucky Bird chooses not to advertise, it will earn a profit of million if Full Coop advertises and a profit of million if Full Coop does not advertise. If Full Coop advertises, Lucky Bird makes a higher profit if it chooses . If Full Coop doesn't advertise, Lucky Bird makes a higher profit if it chooses . Suppose that both firms start off by deciding not to advertise. If the firms act independently, what strategies will they end up choosing? Both firms will choose to advertise. Lucky Bird will choose not to advertise and Full Coop will choose to advertise. Lucky Bird will choose to advertise and Full Coop 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? Lucky Bird will choose not to advertise and Full Coop will choose to advertise. Lucky Bird will choose to advertise and Full Coop will choose not to advertise. Both firms will choose to advertise. Both firms will choose not to advertise.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter13: best-practice Tactics: Game Theory

Section: Chapter Questions

Problem 3E

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Suppose that two firms, Lucky Bird and Full Coop, are the only sellers of seitan buffalo wings in some hypothetical market. The following payoff matrix gives the profit (in millions of dollars) earned by each company depending on whether or not it chooses to advertise:

	Full Coop
Advertise	Doesn't Advertise
Lucky Bird	Advertise	9, 9	15, 3
Doesn't Advertise	3, 15	11, 11

For example, the lower left cell of the matrix shows that if Full Coop advertises and Lucky Bird does not advertise, Full Coop will make a profit of $15 million, and Lucky Bird will make a profit of $3 million. Assume this is a simultaneous game and that Lucky Bird and Full Coop are both profit-maximizing firms.

If Lucky Bird chooses to advertise, it will earn a profit of

million if Full Coop advertises and a profit of

million if Full Coop does not advertise.

If Lucky Bird chooses not to advertise, it will earn a profit of

million if Full Coop advertises and a profit of

million if Full Coop does not advertise.

If Full Coop advertises, Lucky Bird makes a higher profit if it chooses .

If Full Coop doesn't advertise, Lucky Bird makes a higher profit if it chooses .

Suppose that both firms start off by deciding not to advertise. If the firms act independently, what strategies will they end up choosing?

Both firms will choose to advertise.

Lucky Bird will choose not to advertise and Full Coop will choose to advertise.

Lucky Bird will choose to advertise and Full Coop 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?

Lucky Bird will choose not to advertise and Full Coop will choose to advertise.

Lucky Bird will choose to advertise and Full Coop will choose not to advertise.

Both firms will choose to advertise.

Both firms will choose not to advertise.

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