If you advertise and your rival advertises, you each will earn $5 million in profits.If neither of you advertise, you will each earn $10 million in profits.However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non advertising firm will earn $1 million.Which of the following is true?
A)A dominant strategy for Firm A is to advertise.
B)A dominant strategy for Firm B is to advertise.
C)A Nash equilibrium is for both firms to advertise.
D)All of the statements associated with this question are correct.

Question

Quizplus · Accepted Answer

All firms have a dominant strategy to advertise since they will either earn $5 million or $15 million in profits if they advertise, which is higher than their earnings of $10 million if they do not advertise. A Nash equilibrium is achieved when both firms advertise because neither firm can increase their profits by changing their strategy unilaterally since they will always earn more by advertising. Therefore, all the statements associated with this question are correct.

If You Advertise and Your Rival Advertises, You Each Will