Table 17-2 Suppose That Two Firms Determine That Each Could Lower Its

question 112

Multiple Choice

Table 17-2
Suppose that two firms determine that each could lower its costs and increase its profits if both reduced their advertising budgets.But in order for the plan to work,each firm must agree to refrain from advertising.Each firm believes that advertising works by increasing the demand for the firm's product,but each firm also believes that if neither firm advertises,the cost savings will outweigh the lost sales.The table below lists each firm's individual profits:
Firm A
Breaks agreement Maintains agreement
and advertises and does not advertise

-Refer to Table 17-2.Does either Firm A or Firm B have a dominant strategy?

• A) Firm A has a dominant strategy,but Firm B does not.
• B) Firm A does not have a dominant strategy,but Firm B does.
• C) Neither Firm A nor Firm B has a dominant strategy.
• D) Both Firm A and Firm B have a dominant strategy.

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Definitions:

Independent Events

Two or more events where the occurrence of one does not affect the probability of the other(s) occurring.

Probability

A numerical representation, between 0 and 1, indicating how likely it is for an event to happen.

First Serves

In tennis, the initial serve attempt made at the start of each point.

Randomly Selected

A method of selection where each member of a population has an equal chance of being chosen without bias.