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

question 26

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 Alistair have a dominant strategy and if so,what is it?

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

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Definitions:

Silence Acceptance

The concept that silence can be interpreted as acceptance of an offer under certain conditions in contract law.

Binding Contract

A legally binding contract between two or more parties that can be upheld in court.

Formal Written Agreement

A legally binding contract that is documented in writing and signed by all parties involved.

Implied Acceptance

An agreement to the terms of a contract demonstrated through actions or behaviors, rather than explicitly communicated through words.