EBK FOUNDATIONS OF ECONOMICS
8th Edition
ISBN: 8220103632225
Author: PARKIN
Publisher: PEARSON
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Chapter 18, Problem 6MCQ
To determine
To choose:
The option that correctly explains the effect of advertising in the prisoners' dilemma game.
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Economics
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Anna, Bill, and Charles are competitors in a local market, and each is trying to decide whether it is worthwhile to advertise, If all of
them advertise, each will earn a profit of $5000. If none of them advertise, each will earn a profit of $8000, If only one of them
advertises, the one who advertises will earn a profit of $10,000 and the other two will each earn $2000. If two of them advertise,
those two will each earn a profit of $6000 and the other one will earn $1000. If all three follow their dominant strategy, what will
Anna do, and how much will she earn?
Select one:
a. Anna will advertise and earn $5000.
b. Anna will advertise and earn $6000.
C. Anna will not advertise and will earn $8000,
d. Anna will advertise and earn $10,000.
Save Answer
Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies spit the market and earn $60 million each. If they both advertise, they
again split the market, but profits are lower by $20 million since each company must bear the cost of advertisirlg. Yet if one company advertises while the other does not, the one that
advertises attracts customers from the other. In this case, the company that advertises earns $70 million while the company that does not advertise earns only $30 million. What will
these two companies do if they behave as individual profit maximizers?
Neither company will advertise, and PM Inc. earns $60.
One company will advertise, the other will not. Brown Inc. earns $70.
Both companies will advertise, and PM Inc. earns $40.
Both companies will advertise, and PM Inc. earns $60.
The table below shows the payoffs for two firms competing through advertisement.
Firm A and Firm B can each choose to advertise, or to not advertise.
A's Strategy
a.
Advertise
Don't
Advertise
C.
b. Firm A: Advertise
Firm B: Advertise
Table 14.3
B's Strategy
Advertise
A's profit $75 million
B's profit $75 million
Based on the pay-off table above, what is the Nash equilibrium outcome?
A's profit $50 million
B's profit $200 million
Firm A: Don't Advertise
Firm B: Advertise
d. Firm A: Advertise
Firm A: Don't Advertise
Firm B: Don't Advertise
Don't Advertise
A's profit $200 million
B's profit $50 million
Firm B: Don't Advertise
A's profit $100 million
B's profit $100 million
Chapter 18 Solutions
EBK FOUNDATIONS OF ECONOMICS
Ch. 18 - Prob. 1SPPACh. 18 - Prob. 2SPPACh. 18 - Prob. 3SPPACh. 18 - Prob. 4SPPACh. 18 - Prob. 5SPPACh. 18 - Prob. 6SPPACh. 18 - Prob. 7SPPACh. 18 - Prob. 8SPPACh. 18 - Prob. 1IAPACh. 18 - Prob. 2IAPA
Ch. 18 - Prob. 3IAPACh. 18 - Prob. 4IAPACh. 18 - Use this information to work Problems 5 to 7. DOJ...Ch. 18 - Use this information to work Problems 5 to 7. DOJ...Ch. 18 - Prob. 7IAPACh. 18 - Which of the following statements is incorrect. In...Ch. 18 - If firms in oligopoly form a cartel, it will...Ch. 18 - Prob. 3MCQCh. 18 - Prob. 4MCQCh. 18 - Prob. 5MCQCh. 18 - Prob. 6MCQCh. 18 - Prob. 7MCQ
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- Belge1 - Word eri Gözden Geçir Görünüm Yardım Ne yapmak istediğinizi söyleyin 1) Two firms, X and Y, are planning to market their new products. Each firm can develop TV, Laptop. Market research indicates that the resulting profits to each firm for the alternative strategies are given by the following payoff matrix ! FIRM Y TV LAPTOP PHONE FIRM X TV 30, 30 60. 35 20, 50 LAPTOP 40,70 20, 20 50,80 PHONE 50,20 80,50 10,10 A) Find the Nash equilibria for this game, assuming that both firms make their decisions at the same time. (explain the decision step by step); B) If each firm is risk averse and uses a maximin strategy, what will be the resulting equilibrium? (explain the decision step by step); C) What will be the equilibrium if Firm X makes its selection first? If Firm Y goes first?:arrow_forward18. Horizontal Integration is most likely to lead to an industry that is: monopolistically competitive an oligopoly any of the other answers O perfectly competitivearrow_forwardIn an advertising prisoners' dilemma game, O A. the two firms agree on the total advertising budget and split it equally O B. neither firm will advertise because both realize that it lowers profit O C. only one firm will advertise because the other firm sees the advertising expenditure as a waste O D. both firms will advertise and end up with lower profits than if neither advertisesarrow_forward
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