Suppose That Each of the Only Two Firms in an Industry

question 157

Multiple Choice

Suppose that each of the only two firms in an industry has the independent choice of advertising its product or not advertising.If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million and the other gets profit of $2 million.According to game theory, if the firms could collude to maximize profit:

• A)both may or may not advertise.
• B)one will advertise and the other will not.
• C)both will advertise.
• D)neither will advertise.

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Definitions:

Work Flow Analysis

The study of the business processes and activities involved in completing a specific task or project to increase efficiency.

Work Processes

The sequence of tasks or activities that are undertaken in the pursuit of achieving a work-related goal or producing a specific outcome.

Inputs

The resources, information, or materials used in a process to produce outputs.

Raw Materials

Basic materials that are used in the production of goods, finished products, or intermediate materials that are feedstock for future finished products.