Scenario: Company a and Company B Are Considering Spending a Certain

question 58

Multiple Choice

Scenario: Company A and Company B are considering spending a certain sum of money to advertise their new range of products. If Company A chooses to advertise while Company B does not, Company A's annual sales will increase by $5 million, while Company B's sales will remain unchanged. If Company B chooses to advertise while Company A does not, Company B's annual sales will increase by $5 million, while Company A will not experience any change in its sales. If both the companies decide to advertise, their sales will increase sales by $2 million each, and if neither of them spends on advertisement, their sales will remain unchanged.
-Refer to the scenario above.Suppose the cost of advertising in this industry is very high and each company will incur a cost of $3 million annually if they choose to advertise.Which of the following is true in this case?

• A) Company A's best response is to advertise if Company B advertises.
• B) Company B's best response is to advertise irrespective of what Company A does.
• C) Company A's dominant strategy is to advertise.
• D) This game does not have a dominant strategy equilibrium.

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Definitions:

Prestigious University

An institution of higher education that is often recognized for its high academic standards, distinguished faculty, and successful alumni.

Group Pressure

The influence exerted by a group on its members to behave in a way that is consistent with the group's norms and expectations.

Group's Status

The relative standing or prestige of a group within a society or a specific context.

Social Norms

The accepted behaviors, rules, or standards within a society or group that guide individuals' actions and interactions.