If You Advertise and Your Rival Advertises, You Each Will

question 100

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. Which of the following is true?

• A) A dominant strategy for firm A is to advertise.
• B) A dominant strategy for firm B is to advertise.
• C) A Nash equilibrium is for both firms to advertise.
• D) None of the answers is correct.

---

Definitions:

Postconventional Reasoning

The highest stage in Kohlberg's theory of moral development, characterized by the ability to think abstractly and make decisions based on universal ethical principles rather than concrete rules or expectations.

Sensorimotor Stage

The first stage of Piaget's theory of cognitive development, occurring from birth to about 2 years of age, where infants learn about the world through their senses and motor activities.

Formal Operational

The stage in Piaget's theory of cognitive development where individuals gain the ability to think abstractly, reason logically, and understand hypothetical concepts.

Preoperational

A stage in Piaget's theory of cognitive development where children from 2 to 7 years old engage in symbolic play and struggle with logic.