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 Beta decides not to cooperate, its undiscounted benefit from cheating for one month is

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 Beta decides not to cooperate, its undiscounted benefit from cheating for one month is

Quizplus · Accepted Answer

If Beta decides not to cooperate, it will choose high advertising while Alpha chooses low, resulting in a payoff of $6,500 for Beta. If they both cooperated at low, Beta would get $2,000. The benefit from cheating is $6,500 - $2,000 = $4,500, but since the question asks for the undiscounted benefit from cheating for one month, it is $3,000.

The Managers of Alpha and Beta Must Make Repeated Advertising