The managers of Alpha and Beta must make repeated advertising decisions simultaneously at the beginning of every month. They choose either low or high levels of advertising expenditure. They both employ a discount rate of 2.5 percent per month. Use the payoff table shown below to answer Questions .
$\begin{array} { l }
&\text {Beta's advertising }\
\text {Alpha's advertising }&\begin{array}{l|l|l|}
& \text {High }& \text { Low }\
\hline High &\mathrm{A}&\mathrm{B}\
& {\$ 7,000, \$ 3,500} &{\$ 2,000, \$ 6,500} \
\hline Low &\mathrm{C}&\mathrm{D}\&{\$ 8,000} \$ 1,000 & {\$4,000, \$ 2,000} \
\hline
\end{array}\
\end{array}$
-If both firms cooperate, Alpha will choose a _________ level of advertising and Beta will choose a _________ level of advertising.

Question

The managers of Alpha and Beta must make repeated advertising decisions simultaneously at the beginning of every month. They choose either low or high levels of advertising expenditure. They both employ a discount rate of 2.5 percent per month. Use the payoff table shown below to answer Questions .
 $\begin{array} { l  } 
 &\text {Beta's advertising  }\
 \text {Alpha's advertising }&\begin{array}{l|l|l|}
& \text {High  }& \text { Low }\
\hline High &\mathrm{A}&\mathrm{B}\
& {\$ 7,000, \$ 3,500} &{\$ 2,000, \$ 6,500} \
\hline Low &\mathrm{C}&\mathrm{D}\&{\$ 8,000}  \$ 1,000 & {\$4,000, \$ 2,000} \
\hline
\end{array}\
\end{array}$
-If both firms cooperate, Alpha will choose a _________ level of advertising and Beta will choose a _________ level of advertising.

Quizplus · Accepted Answer

Alpha will choose a high level of advertising because it will earn a higher payoff of $7,000 than it would if it chose a low level of advertising ($4,000). Beta will also choose a high level of advertising because it will earn a higher payoff of $3,500 than it would if it chose a low level of advertising ($2,000).

The Managers of Alpha and Beta Must Make Repeated Advertising