If you advertise and your rival advertises,you each will earn $3 million in profits.If neither of you advertises,you will each earn $7 million in profits.However,if one of you advertises and the other does not,the firm that advertises will earn $10 million and the non-advertising firm will earn $1 million.If you and your rival plan to be in business for only one year,the Nash equilibrium is for your firm:
A) and your rival to advertise.
B) and your rival not to advertise.
C) to advertise and your rival not to advertise.
D) not to advertise and your rival to advertise.

Question

Quizplus · Accepted Answer

In this scenario, both firms have an incentive to advertise regardless of the other's decision because advertising always results in a higher payoff compared to not advertising, regardless of the competitor's action. This leads to a Nash equilibrium where both firms choose to advertise, each earning $3 million.

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