S. To advertise or not to advertise Suppose that Expresso and Beantown are the o

Question

S. To advertise or not to advertise Suppose that Expresso and Beantown are the only two firms 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 Advertise 15,2 Expresso 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 miltion, and Seankown wll make a profit of $2 million. Assume this is a simultaneous game and that Expresso and Beantown are both profit-maximizing ms If Expresso dedides to advertise, it will earn a proft of s advertise milion neantown advertises and a pront of milion it Beantown does not If Expresso decides not to advertise, it will earn a profe ofs not advertise n if Beantown advertises and a profit of mition it Beantown does Ir Beantown advertises, Expresso makes a higher proft if it chooses 4 plion

Explanation / Answer

1. $8 million

2. $15 million

3. $2 million

4. $11 million

5. Advertise

6. Advertise

7. Both firms will choose to advertise

8. Both firms will choose not to advertise

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