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.

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.

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 5MC

See similar textbooks

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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