If You Advertise and Your Rival Advertises,you Each Will Earn

question 116

Multiple Choice

If you advertise and your rival advertises,you each will earn $4 million in profits.If neither of you advertises,you will each earn $10 million in profits.However,if one of you advertises and the other does not,the firm that advertises will earn $1 million and the non-advertising firm will earn $5 million.Suppose this game is repeated for a finite number of times,but the players do not know the exact date at which the game will end.The players can earn profits of $10 each period as a Nash equilibrium to a repeated play of the game if the probability the game terminates at the end of any period is:

• A) close to 1.
• B) close to 0.
• C) between 0 and 1.
• D) All of the statements associated with this question are correct.

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Definitions:

Fair Value Accounting

An accounting approach where companies measure and report the value of certain assets and liabilities on a fair value basis.

Net New Borrowing

The difference between the new debt taken on and debt that is repaid during a given period, reflecting a company's or government’s net financing activity.

Statement of Comprehensive Income

A financial statement that shows all changes in equity during a period except those resulting from investments by and distributions to owners.

Balance Sheet

A financial statement that displays a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of its financial position.