To find the firm’s profits from the sales figures, assume that the price is $30, that the marginal cost is $20, and that the fixed cost of advertising is $300. (a) Fill in the profits in the following simultaneous-move game: Google Advertise Don’t Apple Advertise ? ? Don’t ? ? (b) What is the Nash equilibrium of the game? What strategies result in the highest industry profits? Explain in words why the firms don’t choose those strategies?
Suppose that total unit sales of iPhones and Android phones depends on both Apple’s and Google’s advertising expenditures:
Advertise Don’t
Apple Advertise 100, 100 120, 60
Don’t 60, 120 80, 80
To find the firm’s profits from the sales figures, assume that the price is $30, that the marginal cost is $20, and that the fixed cost of advertising is $300.
(a) Fill in the profits in the following simultaneous-move game:
Advertise Don’t
Apple Advertise ? ?
Don’t ? ?
(b) What is the Nash equilibrium of the game? What strategies result in the
highest industry profits? Explain in words why the firms don’t choose
those strategies?
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