Suppose that Fizzo and Pop Hop are the only two firms that sell orange soda. The

Question

Suppose that Fizzo and Pop Hop are the only two firms that sell orange soda. The following payoff matrix shows the profits (in millions of dollars) each company will earn depending on whether it advertises. For example, the upper right cell shows that if Fizzo advertises and Pop Hop doesn't advertise, Fizzo will make a profit of $7 million and Pop Hop will make a profit of $1 million. Both Fizzo and Pop Hop are profit-maximizing firms. Pop Hop Advertise Don't Advertise Advertisee 3, 3 7,1 Fizzo Don't Advertise,7 5, 5 If Fizzo decides to advertise, it will earn a profit of if Pop Hop advertises and a profit of if Pop Hop does not advertise. If Fizzo decides not to advertise, it will earn a profit of if Pop Hop advertises and a profit of if Pop Hop does not advertise. If Pop Hop advertises, Fizzo makes a higher profit if it chooses If Pop Hop doesn't advertise, Fizzo makes a higher profit if it chooses

Explanation / Answer

If Fizzo decides to advertise,it will earn a profit of 3 if pop hop advertises and a profit of 7 if pop hop doesn't adverstise

If Fizzo decides not to advertise, it will earn a profit of 1 if pop hop advertises and a profit of 5 if pop hop does not advertises.

if pop hop advertises, Fizzo makes a higher profit if it chooses to advertise.

if pop hop does not advertises, Fizzo makes a higher profit if it chooses to advertise.

if the firms act independently, strategy will they choose

d) both will choose to advertise

if the firms decide to collude, strategy

c) both will choose not to advertise

it must be easier for FIZZO and POP-HOP to achieve the cooperative outcome of the game if

a) it were difficult to monitor whether the other player was advertiisng.

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