Consider Two Craft Bourbons Distilled in Brooklyn, New York: Kings

question 191

Essay

Consider two craft bourbons distilled in Brooklyn, New York: Kings County and Stillhouse.If the distilleries advertise, they can both sell more bourbon and increase their revenue.However, the cost of advertising more than offsets the increased revenue so that each distillery ends up with a lower profit than if they do not advertise.On the other hand, if only one advertises, that distillery increases its market share and also its profit.
a.Construct a payoff matrix using the following hypothetical information: If neither distillery advertises: each earns a profit of $500,000 per year.If both advertise: each earns a profit of $250,000 per year.If one advertises and the other does not: the distillery that advertises earns a profit of $750.000 and the distillery that does not advertise earns a profit of $125,000.
b.If the two distilleries agree to coordinate their strategies, what is the outcome?

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