The city of Dustin is going to grant an exclusive contract to provide cable TV for the next year.The economic profit of the contract is thought to be $5 million.Firm 1 and firm 2 are competing for the contract.The firm that spends the most on lobbying will be awarded the contract.
-Refer to the information above.If both firm 1 and firm 2 spend $2.5 million on lobbying,each firm's expected profit from the contract is

Question

Quizplus · Accepted Answer

If both firms spend $2.5 million on lobbying, they each incur a cost of $2.5 million. Since they spend the same amount, neither gains an advantage, and thus neither wins the contract outright. Therefore, their expected profit is $0, as the cost of lobbying cancels out any potential profit.

The City of Dustin Is Going to Grant an Exclusive