Suppose That Each of the Two Firms in a Duopoly

question 259

Multiple Choice

Suppose that each of the two firms in a duopoly has the independent choice of advertising 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.