Table 11-9 Alistair Luggage and Baine Baggage Are the Only Firms Selling

question 187

Multiple Choice

Table 11-9
$\begin{array}{c}\text { Alistair's (A) Choices }\\\text { Baine's (B) Choices }\begin{array}{|c|c|c|}\hline & \begin{array}{c}\text { Increase } \\\text { advertising } \\\text { budget }\end{array} & \begin{array}{c}\text { Leave } \\\text { advertising } \\\text { budget as is }\end{array} \\\hline \begin{array}{c}\text { Increase advertising } \\\text { budget }\end{array} & \begin{array}{c}\text { A: } \$ 30,000 \text { profit } \\\text { B: } \$ 30,000 \text { profit }\end{array} & \begin{array}{c}\text { A: } \$ 10,000 \text { profit } \\\text { B: } \$ 50,000 \text { profit }\end{array} \\\hline \begin{array}{c}\text { Leave advertising } \\\text { budget as is }\end{array} & \begin{array}{c}\text { A: } \$ 50,000 \text { profit } \\\text { B: } \$ 10,000 \text { profit }\end{array} & \begin{array}{c}\text { A: } \$ 40,000 \text { profit } \\\text { B: } \$ 40,000 \text { profit }\end{array} \\\hline\end{array}\end{array}$
Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito. Each firm must decide on whether to increase its advertising spending to compete for customers.If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table 11-9 shows the payoff matrix for this advertising game.
-Refer to Table 11-9.Does Baine have a dominant strategy and if so,what is it?

• A)Yes, Baine should increase its advertising budget.
• B)Yes, Baine should keep its advertising budget as is.
• C)There are two dominant strategies: if Alistair increases its advertising budget, then Baine's best bet is to keep its budget the same but if Alistair does not increase its spending then Baine should raise its advertising budget.
• D)No, there is no dominant strategy.

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Definitions:

Quantity Supplied

The amount of a commodity that producers are willing to sell at a particular price over a specified period.

Quantity Demanded

The total amount of a product that consumers are willing and able to purchase at a given price, at a specific time.

Market Equilibrium

A condition in which a market's supply and demand balance each other, and, as a result, prices become stable.

Quantity Supplied

The amount of a good or service that producers are willing and able to sell at a given price during a specific time period.