-Two Firms Are Introducing an Improved Version of Their Toothpastes

question 65

Essay

-Two firms are introducing an improved version of their toothpastes.They must decide whether or not to advertise their products.The table above gives the payoff matrix in terms of the economic profits they expect in each case.The payoffs are in terms of millions of dollars.
a.What is the Nash equilibrium for the game?
b.If they could cooperate,what strategy would they prefer? What would be the payoff?

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Definitions:

Operating Capacity

The maximum output or production level a company can sustain with its current resources, such as machinery and labor, over a specific period.

Unused Capacity

Resources or production potential that remains unutilized or is not being used to its full extent.

Opportunity Cost

The cost of the next best alternative that is foregone when a decision is made to choose one option over others.

Cash Outlay

The actual amount of money spent by a company to purchase goods or services, as opposed to accounting estimates or accruals.