Consider the following information for a simultaneous move game: If you advertise and your rival advertises,you each will earn $5 million in profits.If neither of you advertises,you will each earn $10 million in profits.However,if one of you advertises and the other does not,the firm that advertises will earn $15 million and the non-advertising firm will earn $1 million.If you and your rival plan to be in business for only one year,the Nash equilibrium is:
A) for each firm to advertise.
B) for neither firm to advertise.
C) for your firm to advertise and the other not to advertise.
D) None of the preceding answers is correct.

Question

Quizplus · Accepted Answer

In a Nash equilibrium, each player's strategy is optimal given the other player's strategy. Here, advertising is a dominant strategy for both firms because it guarantees a higher payoff ($5 million or $15 million) regardless of the other firm's action, compared to not advertising ($10 million or $1 million). Thus, the Nash equilibrium is for both firms to advertise.

Consider the Following Information for a Simultaneous Move Game: If