Consider the Following Information for a Simultaneous Move Game: If

question 130

Multiple Choice

Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits.If neither of you advertise, you will each earn $10 million in profits.However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non advertising firm will earn $1 million.If you and your rival plan to be in business for 10 years, then the Nash equilibrium is

• A)For each firm to advertise every year.
• B)For neither firm to advertise in early years, but to advertise in later years.
• C)For each firm to not advertise in any year.
• D)For each firm to advertise in early years, but not advertise in later years.

---

Definitions:

Simple Interest

A method of calculating interest where the calculation is based only on the original amount of money invested or borrowed, excluding the effect of compounding.

Profit

The financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Personal Line

A type of credit product that allows individuals to borrow up to a pre-approved limit on an as-needed basis.

Prime Rate

The interest rate that commercial banks charge their most creditworthy customers, often used as a reference for other rates.