Refer to the Normal-Form Game of Advertising Shown Below Consider the Advertising Game in Figure 10-17

question 89

Multiple Choice

Refer to the normal-form game of advertising shown below. $\begin{array}{c}\quad\quad\quad\quad\quad\quad\text { Firm B}\\\text { Firm A }\begin{array}{|l|l|l|} \hline & \text { Advertise } & \begin{array}{l}\text { Do Not } \\\text { Advertise }\end{array} \\\hline \text { Advertise } & \$ 0, \$ 0 & \$ 175, \$ 10 \\\hline \begin{array}{l}\text { Do Not } \\\text { Advertise }\end{array} & \$ 10, \$ 175 & \$ 125, \$ 125\\\hline\end{array}\end{array}$ Consider the advertising game in Figure 10-17.Firms A and B know the game will be played for exactly five periods.What is a Nash equilibrium to this game?

• A) {advertise, do not advertise}
• B) {advertise, advertise}
• C) {do not advertise, do not advertise} provided the interest rate is less than 0.10 percent
• D) {advertise, advertise} provided the interest rate is less than 0.50 percent

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Definitions:

Discount Rate

The rate applied within discounted cash flow analysis for assessing the present worth of forthcoming cash flows.

Net Present Value

A method of evaluating investments by calculating the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Initial Investment

The initial amount of money spent to start a project, investment, or business, often including costs such as purchasing equipment, property, or technology.

Internal Rate of Return

The discount rate at which the net present value of all the cash flows from an investment or project equals zero, used as a gauge for its profitability.