Scenario: Company A and Company B are considering spending a certain sum of money to advertise their new range of products. If Company A chooses to advertise while Company B does not, Company A's annual sales will increase by $5 million, while Company B's sales will remain unchanged. If Company B chooses to advertise while Company A does not, Company B's annual sales will increase by $5 million, while Company A will not experience any change in its sales. If both the companies decide to advertise, their sales will increase sales by $2 million each, and if neither of them spends on advertisement, their sales will remain unchanged.
-Refer to the scenario above.If the cost of advertising is negligible,what will be the outcome of this game?
A) Company A will advertise its products while Company B will not advertise.
B) Company B will advertise, while Company A will not advertise.
C) Both the companies will advertise their products.
D) Neither of the companies will advertise its products.

Question

Quizplus · Accepted Answer

If both companies advertise, they will both experience an increase in sales of $2 million, which is the best outcome for both. If either company advertises while the other does not, only the advertising company experiences an increase in sales of $5 million, but the non-advertising company stays the same. Therefore, there is no incentive for either company to advertise alone. If neither company advertises, their sales stay the same, which is not as good as if both companies advertise. Therefore, the best choice is for both companies to advertise.

Scenario: Company a and Company B Are Considering Spending a Certain