If You Advertise and Your Rival Advertises, You Each Will

question 99

Multiple Choice

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.Suppose this game is repeated for a finite number of times, but the players do not know the exact date at which the game will end.The players can earn collusive profits as a Nash equilibrium to the repeated play of the game if the probability the game terminates in any period is

• A)1.
• B)greater than one.
• C)close to zero.
• D)none of the statements associated with this question are correct.

---

Definitions:

Operating Costs

Expenses associated with the day-to-day operations of a business, excluding costs directly related to production, such as utilities, rent, and office supplies.

Profitability Index

A financial metric that measures the relative profitability of an investment, calculated as the present value of future cash flows divided by the initial investment cost.

Present Value

The current value of a future sum of money or stream of cash flows given a specified rate of return.

Initial Investment

The amount of capital put into a project or business at the beginning, often used in capital budgeting to analyze potential returns.