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12. To advertise or not to advertise Suppose that two firms, Hatte Latte and Bean Bruuer, are the only sellers of espresso in some hypothetical market. The following payoff matrix gives the profit (in millions of dollars) earned by each company depending on whether or not it chooses to advertise: Bean Bruuer Advertise Doesn't Advertise Advertise 9,9 Hatte Latte Doesn't Advertise 3,15 15,3 11,11 For example, the lower left cell of the matrix shows that if Bean Bruuer advertises and Hatte Latte does not advertise, Bean Bruuer will make a profit of $15 million, and Hatte Latte will make a profit of $3 million. Assume this is a simultaneous game and that Hatte Latte and Bean Bruuer are both profit-maximizing firms. If Hatte Latte chooses to advertise, it will earn a profit of $ does not advertise. million if Bean Bruuer advertises and a profit of $ million if Bean Bruuer If Hatte Latte chooses not to advertise, it will earn a profit of $ does not advertise. million if Bean Bruuer advertises and a profit of $ million if Bean Bruuer If Bean Bruuer advertises, Hatte Latte makes a higher profit if it chooses If Bean Bruuer doesn't advertise, Hatte Latte makes a higher profit if it ch not to advertise to advertise Suppose that both firms start off by deciding not to advertise. If the firms act independency, what strategies will they end up choosing? Both firms will choose not to advertise. Hatte Latte will choose to advertise and Bean Bruuer will choose not to advertise. Both firms will choose to advertise. Hatte Latte will choose not to advertise and Bean Bruuer will choose to advertise.

12. To advertise or not to advertise Suppose that two firms, Hatte Latte and Bean Bruuer, are the only sellers of espresso in some hypothetical market. The following payoff matrix gives the profit (in millions of dollars) earned by each company depending on whether or not it chooses to advertise: Bean Bruuer Advertise Doesn't Advertise Advertise 9,9 Hatte Latte Doesn't Advertise 3,15 15,3 11,11 For example, the lower left cell of the matrix shows that if Bean Bruuer advertises and Hatte Latte does not advertise, Bean Bruuer will make a profit of $15 million, and Hatte Latte will make a profit of $3 million. Assume this is a simultaneous game and that Hatte Latte and Bean Bruuer are both profit-maximizing firms. If Hatte Latte chooses to advertise, it will earn a profit of $ does not advertise. million if Bean Bruuer advertises and a profit of $ million if Bean Bruuer If Hatte Latte chooses not to advertise, it will earn a profit of $ does not advertise. million if Bean Bruuer advertises and a profit of $ million if Bean Bruuer If Bean Bruuer advertises, Hatte Latte makes a higher profit if it chooses If Bean Bruuer doesn't advertise, Hatte Latte makes a higher profit if it ch not to advertise to advertise Suppose that both firms start off by deciding not to advertise. If the firms act independency, what strategies will they end up choosing? Both firms will choose not to advertise. Hatte Latte will choose to advertise and Bean Bruuer will choose not to advertise. Both firms will choose to advertise. Hatte Latte will choose not to advertise and Bean Bruuer will choose to advertise.

Principles of Microeconomics
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter17: Oligopoly
Section: Chapter Questions
Problem 9PA
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12. To advertise or not to advertise Suppose that two firms, Hatte Latte and Bean Bruuer, are the only sellers of espresso in some hypothetical market. The following payoff matrix gives the profit (in millions of dollars) earned by each company depending on whether or not it chooses to advertise: Bean Bruuer Advertise Doesn't Advertise Advertise Hatte Latte Doesn't Advertise 9,9 3,15 15,3 11, 11 For example, the lower left cell of the matrix shows that if Bean Bruuer advertises and Hatte Latte does not advertise, Bean Bruuer will make a profit of $15 million, and Hatte Latte will make a profit of $3 million. Assume this is a simultaneous game and that Hatte Latte and Bean Bruuer are both profit-maximizing firms. If Hatte Latte chooses to advertise, it will earn a profit of $ does not advertise. million if Bean Bruuer advertises and a profit of $ million if Bean Bruuer If Hatte Latte chooses not to advertise, it will earn a profit of $ does not advertise. million if Bean Bruuer advertises and a profit of $ million if Bean Bruuer If Bean Bruuer advertises, Hatte Latte makes a higher profit if it chooses not to advertise If Bean Bruuer doesn't advertise, Hatte Latte makes a higher profit if it ch to advertise Suppose that both firms start off by deciding not to advertise. If the firms act muependently, what strategies will they end up choosing? 000 Both firms will choose not to advertise. Hatte Latte will choose to advertise and Bean Bruuer will choose not to advertise. Both firms will choose to advertise. Hatte Latte will choose not to advertise and Bean Bruuer will choose to advertise.
Transcribed Image Text:12. To advertise or not to advertise Suppose that two firms, Hatte Latte and Bean Bruuer, are the only sellers of espresso in some hypothetical market. The following payoff matrix gives the profit (in millions of dollars) earned by each company depending on whether or not it chooses to advertise: Bean Bruuer Advertise Doesn't Advertise Advertise Hatte Latte Doesn't Advertise 9,9 3,15 15,3 11, 11 For example, the lower left cell of the matrix shows that if Bean Bruuer advertises and Hatte Latte does not advertise, Bean Bruuer will make a profit of $15 million, and Hatte Latte will make a profit of $3 million. Assume this is a simultaneous game and that Hatte Latte and Bean Bruuer are both profit-maximizing firms. If Hatte Latte chooses to advertise, it will earn a profit of $ does not advertise. million if Bean Bruuer advertises and a profit of $ million if Bean Bruuer If Hatte Latte chooses not to advertise, it will earn a profit of $ does not advertise. million if Bean Bruuer advertises and a profit of $ million if Bean Bruuer If Bean Bruuer advertises, Hatte Latte makes a higher profit if it chooses not to advertise If Bean Bruuer doesn't advertise, Hatte Latte makes a higher profit if it ch to advertise Suppose that both firms start off by deciding not to advertise. If the firms act muependently, what strategies will they end up choosing? 000 Both firms will choose not to advertise. Hatte Latte will choose to advertise and Bean Bruuer will choose not to advertise. Both firms will choose to advertise. Hatte Latte will choose not to advertise and Bean Bruuer will choose to advertise.
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