The city of Dustin is going to grant an exclusive contract to provide cable TV for the next year.The economic profit of the contract is thought to be $5 million.MegaCable and Acme are competing for the contract.The firm that spends the most on lobbying will be awarded the contract.
Suppose MegaCable spends $2 on lobbying and Acme spends $1 on lobbying.If both firms know what the other is spending,the expected profit to MegaCable is __________ and to Acme it is __________.

Question

Quizplus · Accepted Answer

MegaCable spends $2 on lobbying and wins the contract, so its profit is $5 million minus $2, which equals $4,999,998. Acme spends $1 on lobbying and loses, resulting in a loss of $1.

The City of Dustin Is Going to Grant an Exclusive