Microeconomics (12th Edition) (Pearson Series in Economics)
12th Edition
ISBN: 9780133872293
Author: Michael Parkin
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 15, Problem 14APA
To determine
Identify the benefits from each action led by the Coca-Cola and PepsiCo in advertising game and construct a game to show the choices of both the firms.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Economics
Remove flag
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.
Previous research suggests that many firms ‘over - invest’ in advertising - meaning spend beyond a point where advertising positively affects a firm’s bottom line (if interested see here: Advertising Effectiveness). Game Theory can explain some of this, but not all. What else can explain why many firms over invest in advertising? Are there are any reasons for firms to advertise beyond wanting to increase profits? Note: two recent
Freakonomics on this topic can be found here: https://freakonomics.com/podcast/advertising-part-1 and https://freakonomics.com/podcast/advertising-part-2
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
Advertise
Don't
Advertise
Table 14.2
B's Strategy
Advertise
A's profit $100 million
B's profit $100 million
A's profit $50 million
B's profit $200 million
What is Firm A's dominant strategy?
Don't Advertise
A's profit $200 million
B's profit $50 million
C.
Advertise
d. Firm A does not have a dominant strategy
A's profit $75 million
B's profit $75 million
a. Don't advertise
b. Indeterminate from this information, as no information is provided on Firm A's
risk preference.
Chapter 15 Solutions
Microeconomics (12th Edition) (Pearson Series in Economics)
Ch. 15.1 - Prob. 1RQCh. 15.1 - Prob. 2RQCh. 15.1 - Prob. 3RQCh. 15.1 - Prob. 4RQCh. 15.2 - Prob. 1RQCh. 15.2 - Prob. 2RQCh. 15.2 - Prob. 3RQCh. 15.2 - Prob. 4RQCh. 15.2 - Prob. 5RQCh. 15.2 - Prob. 6RQ
Ch. 15.3 - Prob. 1RQCh. 15.3 - Prob. 2RQCh. 15.4 - Prob. 1RQCh. 15.4 - Prob. 2RQCh. 15.4 - Prob. 3RQCh. 15.4 - Prob. 4RQCh. 15.4 - Prob. 5RQCh. 15 - Prob. 1SPACh. 15 - Prob. 2SPACh. 15 - Prob. 3SPACh. 15 - Prob. 4SPACh. 15 - Prob. 5SPACh. 15 - Prob. 6SPACh. 15 - Prob. 7SPACh. 15 - Prob. 8SPACh. 15 - Prob. 9APACh. 15 - Prob. 10APACh. 15 - Prob. 11APACh. 15 - Prob. 12APACh. 15 - Prob. 13APACh. 15 - Prob. 14APACh. 15 - Prob. 15APACh. 15 - Prob. 16APACh. 15 - Prob. 17APACh. 15 - Prob. 18APACh. 15 - Prob. 19APACh. 15 - Prob. 20APACh. 15 - Prob. 21APACh. 15 - Prob. 22APACh. 15 - Prob. 23APA
Knowledge Booster
Similar questions
- 1. How might advertising make markets less competitive? How might it make markets more competitive? 2. Explain two benefits that might arise from the existence of brand names. 3. If the oligopoly members agree on a total quantity to produce, what quantity would they choose? Why? 4. What does the prisoners' dilemma teach us about oligopolies?arrow_forwardDo you think Netflix is under the market structure - Oligopoly? Why?arrow_forwardResearch on the following and discuss the following, present the necessary illustration: a. kinked demand curve b. Game theory c. predatory pricing d. market efficiencyarrow_forward
- Only typing answer Please explain step by steparrow_forwardSuppose the carwash market is monopolistically competitive and that businesses in this market are currently earning positive economic profits. In the long run, the demand for an individual car wash business will the market , which will cause economic profits to as more carwash businesses enter Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a fall; rise fall; fall to zero rise; fall to zero d rise; risearrow_forwardWhy is there so much advertising in monopolistic competition and oligopoly? How does such advertising help consumers and promote efficiency? Why might it be excessive at times?arrow_forward
- Identify a real-world situation in which you see game theory/strategic behavior in action. Explain the game: Who are the players ? What are the strategies they have at their disposal? How are payoffs determined? What, if any, is the Nash equilibrium? Note, this article from Up Journey might help you come up with an example: https://upjourney.com/game-theory-examples-in-real-lifearrow_forwardI need help with number 1, 2, 3, 4 1. Which of the following advertisements provides information to the consumer? a. “CarbChips have half the carbohydrates of regular potato chips”. b. “The Taj Mahal restaurant is like a trip to India”. c. “Brain-power Books – just think it!” d. “Avion Airlines wants to take you higher”. 2. Firms in an Oligopoly produce a quantity of output that is less than the level produced by a perfectly competitive market and charge a price that is greater than the perfectly competitive price. a. True b. False 3. Which of the following is true of the model of monopolistic competition? a. Barriers to entry enable firms to enjoy positive profits in the long run. b. The number of firms declines over time as a result of economies of scale. c. The monopolistically competitive firms enjoy a greater market power than a monopolist. d. Firms tend to locate near each other in order to minimize total travel costs for consumers.…arrow_forwardFirms in a perfectly competitive market are able to produce as many products as they want. How do they determine how many to make? Monopolies can charge as much as they want for a good but what is the tradeoff for the high price they receive? Oligopolies produce at a quantity and price that is different than Perfect Competition and Monopolies, why does this happen? Use graphs to demonstrate your answers to the first two markets and use a duopoly table example for an Oligopoly. **Please don't be too broad** Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for surearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Principles of Microeconomics (MindTap Course List)EconomicsISBN:9781305971493Author:N. Gregory MankiwPublisher:Cengage LearningPrinciples of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningPrinciples of Economics, 7th Edition (MindTap Cou...EconomicsISBN:9781285165875Author:N. Gregory MankiwPublisher:Cengage Learning
- Principles of MicroeconomicsEconomicsISBN:9781305156050Author:N. Gregory MankiwPublisher:Cengage Learning
Principles of Microeconomics (MindTap Course List)
Economics
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Principles of Economics, 7th Edition (MindTap Cou...
Economics
ISBN:9781285165875
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Principles of Microeconomics
Economics
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:Cengage Learning