Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 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 $15 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:
A) for each firm to advertise.
B) for neither firm to advertise.
C) for your firm to advertise and the other not to advertise.
D) None of the answers is correct.

Question

Quizplus · Accepted Answer

The Nash equilibrium is for each firm to advertise because each firm will earn a higher profit by advertising than by not advertising, regardless of what the other firm does.

Consider the Following Information for a Simultaneous Move Game: If