If You Advertise and Your Rival Advertises, You Each Will

question 98

Multiple Choice

If you advertise and your rival advertises, you each will earn $4 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 $1 million and the non advertising firm will earn $5 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.