34. [Extra Credit 4 points] Chrissy and Marvin are competitors in a local market

Question

34. [Extra Credit 4 points] Chrissy and Marvin are competitors in a local market and each is trying to decide if it is worthwhile to advertise. If both of them advertise, each will earn a profit of $10,000. If neither of them advertises, each will earn a profit of $20,000. If one advertises and the other doesn't, then the one who advertises will earn a profit of $30,000 and the other will earn $14,000. Part 1: Draw the payoff matrix that describes Chrissy's and Marvin's choices. Part 2: Identify Chrissy's dominant strategy. Explain your answer.

Explanation / Answer

(Part 1) Payoff matrix as follows.

(Part 2) A dominant strategy is the strategy chosen by one player irrespective of the strategy chosen by the other player.

Chrissy chooses Not to advertise when Marvin advertises since payoff is higher ($30,000 > $10,000), and Chrissy chooses Not to advertise when Marvin does not advertise since payoff is higher ($20,000 > $14,000). So, Chrissy's dominant strategy is Not to advertise.

CHRISSY Advertise Do Not Advertise MARVIN Advertise ($10000, $10000) ($30000, $14000) Do Not Advertise ($14000, $30000) ($20000, $20000)

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