If you advertise and your rival advertises,you each will earn $4 million in profits.If neither of you advertises,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 $1 million and the non-advertising firm will earn $5 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) None of the preceding answers is correct.

Question

Quizplus · Accepted Answer

There is no dominant strategy for either firm as the optimal choice depends on the choice made by the other firm. The Nash equilibrium is for both firms to advertise, but this is not necessarily the best choice as it results in a lower total profit than if neither firm advertises. Therefore, the best choice would be for both firms to not advertise and earn $10 million in profits each.

If You Advertise and Your Rival Advertises,you Each Will Earn