The Managers of Alpha and Beta Must Make Repeated Advertising

question 28

Multiple Choice

The managers of Alpha and Beta must make repeated advertising decisions simultaneously at the beginning of every month. They choose either low or high levels of advertising expenditure. They both employ a discount rate of 2.5 percent per month. Use the payoff table shown below to answer Questions .
$\begin{array} { l } &\text {Beta's advertising }\\ \text {Alpha's advertising }&\begin{array}{l|l|l|}& \text {High }& \text { Low }\\\hline High &\mathrm{A}&\mathrm{B}\\& {\$ 7,000, \$ 3,500} &{\$ 2,000, \$ 6,500} \\\hline Low &\mathrm{C}&\mathrm{D}\\&{\$ 8,000} \$ 1,000 & {\$4,000, \$ 2,000} \\\hline\end{array}\\\end{array}$
-If Beta expects to get caught the first month it cheats, the present value of the benefits of cheating is

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