Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Question
Chapter 14, Problem 6P
(a)
To determine
Advertising becomes a dominant strategy for both Smith and Jones.
(b)
To determine
Stance of the cigarette selling companies regarding ban of cigarette advertising.
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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:
(base to table)
For example, the upper right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $15 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 (to…
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 _________…
q19
If you advertise and your rival advertises, you each will earn $4 million in profits. If neither of you advertises, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $1 million and the non-advertising firm will earn $5 million. If you and your rival plan to be in business for 10 years, then the Nash equilibrium is
a. for each firm to not advertise in any year.
b. for neither firm to advertise in early years but to advertise in later years.
c. for each firm to advertise every year.
d. for each firm to advertise in early years but not advertise in later years.
Chapter 14 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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Similar questions
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