In the following games, all payoffs are listed with the row player's payoffs first and the column player's payoffs second.
-Game 8 shows the payoff matrix in terms of profit (in millions of dollars)for two possible strategies: advertise or do not advertise. If they legally could, why might the two companies agree to a binding contract committing both to not advertise?
A)Because advertising is ineffective.
B)Because advertising is too expensive.
C)Because not advertising would lower the costs and therefore increase the profits to each firm.
D)Because not advertising would lower profits.

Question

In the following games, all payoffs are listed with the row player's payoffs first and the column player's payoffs second. 
-Game 8 shows the payoff matrix in terms of profit (in millions of dollars)for two possible strategies: advertise or do not advertise. If they legally could, why might the two companies agree to a binding contract committing both to not advertise?
A)Because advertising is ineffective. 
B)Because advertising is too expensive. 
C)Because not advertising would lower the costs and therefore increase the profits to each firm. 
D)Because not advertising would lower profits.

Quizplus · Accepted Answer

The payoff matrix for Game 8 shows that both companies would have higher profits if they both chose not to advertise. Therefore, if they could legally commit to not advertising, they could lower their costs and increase their profits. In game 8, both companies would earn higher profits if they do not advertise (5 million each) compared to advertising (3 million each). By agreeing to a binding contract to not advertise, both firms can lower their costs and increase their profits. Therefore, C is the best choice.

In the Following Games, All Payoffs Are Listed with the Row