Suppose That Each of the Two Firms in a Duopoly

question 131

Multiple Choice

Suppose that each of the two firms in a duopoly has the independent choice of advertising or not advertising.If neither advertises,each gets $10 million in profit;if both advertise,their profits will be $5 million each;and if one advertises while the other does not,the advertiser gets profit of $15 million and the other gets profit of $2 million.According to game theory,if the firms collude to maximize joint profits:

• A)both may or may not advertise.
• B)one will advertise and the other will not.
• C)both will advertise.
• D)neither will advertise.

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Definitions:

Marx

Karl Marx, a 19th-century philosopher, economist, and revolutionary, known for his theories about capitalism and communism.

Weber

Refers to Max Weber, a German sociologist, economist, and political scientist known for his theory on the process of rationalization and his analysis of bureaucracy and social stratification.

Social Stratification

The division of society into hierarchical levels based on factors like wealth, power, and status, leading to unequal access to resources and opportunities.

Inequality

The unequal distribution of resources, opportunities, rights, and powers within a society.