Managerial Economics 2nd Edition by William Boyes

Exercise 17

In a situation that occurs only once, if you advertise and your rival advertises, you will each earn $5 million in profits. If neither of you advertises, your rival will make $4 million and you will make $2 million. If you advertise and your rival does not, you will make $10 million and your rival will make $3 million. If your rival advertises and you do not, you will make $1 million and your rival will make $3 million.
a. Set up the situation in a normal form.
b. Do you have a strategy that you will choose no matter what your rival does?
c. Is there a strategy your rival will choose no matter what you do?
d. What is the solution or equilibrium?
e. How much would you be willing to pay your rival not to advertise?