3. To advertise or not to advertise Suppose that Expresso and Beantown are the only two fims that sell coffee. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Beantown Advertise Doesn't Advertise Advertise 15, 2 Expresso Doesn't Advertise 2, 15 11, 11 For example, the upper right cell shows that if Expresso advertises and Beantown doesn't advertise, Expresso will make a profit of $15 million, and Beantown will make a profit of $2 million. Assume this is a simultaneous game and that Expresso and Beantown are both profit-maximizing firms. ar Expresso decides to advertise, it will earn a profit ofs million if Beantown advertises and a profit of s million if Beantown does not advertise.

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Chapter1: Making Economics Decisions
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3. To advertise or not to advertise
Suppose that Expresso and Beantown are the only two fims that sell coffee. The following payoff matrix shows the profit (in millions of dollars) each
company will earm depending on whether or not it advertises:
Beantown
Advertise Doesn't Advertise
Advertise
15, 2
Expresso
Doesnt Advertise
2. 15
11, 11
For example, the upper right cell shows that if Expresso advertises and Beantown doesn't advertise, Expresso will make a profit of $15 million, and
Beantown will make a profit of $2 million. Assume this is a simultaneous game and that Expresso and Beantown are both profit-maximizing firms.
Ir Expresso decides to advertise, it will earn a profit ofs
million if Beantown advertises and a profit of s
million if Beantown does not
advertise.
r Expresso decides not to advertise, it will eam a profit of s
milion if Beantown advertises and a profit of s
million if Beantown does not
advertise.
Ir Beantown advertises, Expresso makes a higher profit if it chooses
Ir Beantown doesn't advertiae, Expresso makes a higher profe if it chooses
Suppose that both firms start off not advertising. If the firms act independently, what strategies will they end up choosing?
O Expresso will choose to advertise and Beantown will choose not to advertise.
O Expresso will choose not to advertise and Beantown will choose to advertise.
O Both firms will choose not to advertise.
O Both firms will choose to advertise.
Again, suppose that both firms start off not advertising. If the firms decide to collude, what strategies will they end up choosing?
O Expresso will choose not to advertise and Beantown will choose to advertise.
Both firms will choose to advertise.
O Both firms will choose not to advertise.
O Expresso will choose to advertise and Beantown will chOose not to advertise.
Transcribed Image Text:3. To advertise or not to advertise Suppose that Expresso and Beantown are the only two fims that sell coffee. The following payoff matrix shows the profit (in millions of dollars) each company will earm depending on whether or not it advertises: Beantown Advertise Doesn't Advertise Advertise 15, 2 Expresso Doesnt Advertise 2. 15 11, 11 For example, the upper right cell shows that if Expresso advertises and Beantown doesn't advertise, Expresso will make a profit of $15 million, and Beantown will make a profit of $2 million. Assume this is a simultaneous game and that Expresso and Beantown are both profit-maximizing firms. Ir Expresso decides to advertise, it will earn a profit ofs million if Beantown advertises and a profit of s million if Beantown does not advertise. r Expresso decides not to advertise, it will eam a profit of s milion if Beantown advertises and a profit of s million if Beantown does not advertise. Ir Beantown advertises, Expresso makes a higher profit if it chooses Ir Beantown doesn't advertiae, Expresso makes a higher profe if it chooses Suppose that both firms start off not advertising. If the firms act independently, what strategies will they end up choosing? O Expresso will choose to advertise and Beantown will choose not to advertise. O Expresso will choose not to advertise and Beantown will choose to advertise. O Both firms will choose not to advertise. O Both firms will choose to advertise. Again, suppose that both firms start off not advertising. If the firms decide to collude, what strategies will they end up choosing? O Expresso will choose not to advertise and Beantown will choose to advertise. Both firms will choose to advertise. O Both firms will choose not to advertise. O Expresso will choose to advertise and Beantown will chOose not to advertise.
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