Consider Two Craft Bourbons Distilled in Brooklyn, New York: Kings

question 60

Essay

Consider two craft bourbons distilled in Brooklyn, New York: Kings County and Stillhouse.If the distilleries advertise, they can both sell more bourbon and increase their revenue.However, the cost of advertising more than offsets the increased revenue so that each distillery ends up with a lower profit than if they do not advertise.On the other hand, if only one advertises, that distillery increases its market share and also its profit.
a.Construct a payoff matrix using the following hypothetical information: If neither distillery advertises, each earns a profit of $500,000 per month.If both advertise, each earns a profit of $250,000 per month.If one advertises and the other does not, the distillery that advertises earns a profit of $750,000 and the distillery that does not advertise earns a profit of $125,000.
b.If Kings County wants to maximize profit, will it advertise? Briefly explain.
c.If Stillhouse wants to maximize profit, will it advertise? Briefly explain.
d.Is there a dominant strategy for each distiller? Briefly explain.

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Definitions:

Incapacitation

A state of being unable to act or make legal decisions due to physical or mental limitations.

Undisclosed Principal

A principal whose existence is not known by a third party. That is, the third party does not know that an agent is acting on behalf of a principal.

Agent

An individual or entity authorized to act on behalf of another (known as the principal) in dealings with third parties, creating a legal relationship called agency.

Authority

The power or right to give orders, make decisions, and enforce obedience, or a person or organization having such power.