If You and Your Rival Plan to Hand Your Business

question 97

Multiple Choice

If you and your rival plan to hand your business down to your children, and this "bequest" goes on forever, then a Nash equilibrium when the interest rate is zero is for

• A)your firm to never advertise.
• B)your firm to always advertise when your rival does provided that the interest rate is sufficiently large.
• C)each firm to not advertise until the rival does, and then to advertise forever provided the interest rate is sufficiently low.
• D)each firm to advertise until the rival does not advertise, and then not advertise forever.

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Definitions:

Supply Of Domestic Currency

The total amount of a country's currency available within the economy, which can be influenced by the central bank's monetary policy and other factors.

Supply Curve

A graph showing the relationship between the price of a good and the quantity of the good that suppliers are willing to sell.

Exchange Rate

The value of one currency for the purpose of conversion to another, indicating how much one currency is worth in terms of another.