Suppose That Each of the Only Two Firms in an Industry

question 211

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, the Nash equilibrium is:

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

---

Definitions:

Inventory Turnover

A ratio indicating how many times a company's inventory is sold and replaced over a specific period.

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term financial health and operational efficiency of a business.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term and long-term obligations, calculated as current assets divided by current liabilities.

Acid-test Ratio

A financial metric that measures a company's ability to pay off its current liabilities with its most liquid assets without relying on the sale of inventory.