The two firms in an industry are deciding whether to advertise. The profit to each firm depends on the other firm's decision. The first entries in the matrix below indicate the profit earned, in millions of dollars, by Firm A; and the second entries indicate the profits earned, in millions of dollars, by Firm B. Firm B Do Not Advertise Advertise Advertise $7, $1 $5, $4 Firm A Do Not Advertise $3, $2 $2, S0 The combination where Firm A advertises and Firm B does not advertise is Nash equilibrium because O advertising is always the best strategy for Firm A O it is best for each firm given what the other firm has chosen O t is the best outcome for Firm B regardless of what firm A does O Firm A has an incentive to change its strategy and chooses not to advertise O the total industry profits are maximized

The two firms in an industry are deciding whether to advertise. The profit to each firm depends on the other firm's decision. The first entries in the matrix below indicate the profit earned, in millions of dollars, by Firm A; and the second entries indicate the profits earned, in millions of dollars, by Firm B. Firm B Do Not Advertise Advertise Advertise $7, $1 $5, $4 Firm A Do Not Advertise $3, $2 $2, S0 The combination where Firm A advertises and Firm B does not advertise is Nash equilibrium because O advertising is always the best strategy for Firm A O it is best for each firm given what the other firm has chosen O t is the best outcome for Firm B regardless of what firm A does O Firm A has an incentive to change its strategy and chooses not to advertise O the total industry profits are maximized

Principles of Microeconomics (MindTap Course List)

8th Edition

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: Oligopoly

Section: Chapter Questions

Problem 5PA

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