Consider Two Single-Malt Whiskey Distillers, Laphroaig and Knockando

question 228

Essay

Consider two single-malt whiskey distillers, Laphroaig and Knockando.If they advertise, they can both sell more whiskey and increase their revenue.However, the cost of advertising more than offsets the increased revenue so that each distiller ends up with a lower profit than if they do not advertise.On the other hand, if only one advertises, that distiller increases its market share and also its profit.
a.Construct a payoff matrix using the following hypothetical information: If neither distiller advertises, each earns a profit of $35 million per year.If both advertise, each earns a profit of $20 million per year.If one advertises and the other does not, the distiller who advertises earns a profit of $50 million and the distiller who does not advertise earns a profit of $9 million.
b.If Laphroaig wants to maximize profit, will it advertise? Briefly explain.
c.If Knockando 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:

Avoidant

Pertaining to a personality trait or behavior where an individual tends to evade dealing with emotional issues or avoid close interpersonal relationships.

Anorexia Nervosa

An eating disorder characterized by an intense fear of gaining weight and a distorted body image, leading to self-starvation and excessive weight loss.

Body Dissatisfaction

A negative perception of one's own body image, often resulting in distress and a desire to change one's appearance.

Value Thinness

A cultural or personal valuation that assigns importance and desirability to maintaining a slim body shape.