Question

Suppose that Expresso and Beantown are the only two firms that sell coffee. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises:

Beantown
Advertise Doesn't Advertise
Expresso Advertise 8, 8 15, 2
Doesn't Advertise 2, 15 9, 9

For example, the upper right cell shows that if Expresso advertises and Beantown doesn't advertise, Expresso will make a profit of $15 million, and Beantown will make a profit of $2 million. Assume this is a simultaneous game and that Expresso and Beantown are both profit-maximizing firms.

If Expresso decides to advertise, it will earn a profit of $ ____________ million if Beantown advertises and a profit of $ _________ million if Beantown does not advertise. If Expresso decides not to advertise, it will earn a profit of $ ____________ million if Beantown advertises and a profit of $_________ million if Beantown does not advertise.

Answer 1

$15 Million

$8 Million

Step-by-step explanation:

Payoff Matrix is as follows: Beantown

Expresso Advertise = Advertise Doesn't Advertise

(8,8) (15,2)

Doesn't Advertise (2,15) (9,9)

If Expresso decides to advertise, it will earn a profit of $2 million if Beantown

advertises, it follows the strategy (Advertise, Advertise)

He earns a profit of $15 million if Beantown does not Advertise, here it follows the strategy (Advertise, Doesn't Advertise).