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 $2,000,002 on lobbying while Acme spends $2,000,001.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 wins the contract by spending $2,000,002, so its profit is $5 million minus the lobbying cost, resulting in $2,999,998. Acme loses and incurs a cost of $2,000,001, resulting in a negative profit of -$2,000,001.

The City of Dustin Is Going to Grant an Exclusive