Question

1) Scenario: Company A and Company B are considering whether to spend a certain sum of money to advertise their new range of products. If Company A chooses to advertise while Company B does not, Company A's annual sales will increase by $5 million while Company B's sales will remain unchanged. If Company B chooses to advertise while Company A does not, Company B's annual sales will increase by $5 million while Company A will not experience any change in its sales. If both the companies decide to advertise, their sales will increase sales by $2 million each and if none of them spends on advertisement, their sales will remain unchanged.

Refer to the scenario above. If the cost of advertising is negligible, what will the outcome of this game be?
A. Company B will advertise while Company A will not advertise.
B. Company A will advertise its products while Company B will not advertise.
C. Neither of the companies will advertise its products.
D. Both the companies will advertise their products.
2) A payoff matrix shows ________.
A. the payment made to each factor of production for the production of a good
B. the various combinations of inputs required to produce a good
C. the return from each action that players can take in a game
D. the different combinations of two goods that can be bought with a given income

Answer 1

Answer: 1. D. Both the companies will advertise their products.

2. C. the return from each action that players can take in a game.

Step-by-step explanation:

1. It should be noted that in a situation whereby the cost of the advertising is negligible, the outcome of this game will be that the companies will both advertise their products. By doing this, both of the companies will b better off as there'll be an increase in sales. Therefore, the correct option is D.

2. The payoff matrix is used to show the possible outcome that'll be made by an economic entity when a strategic decision is made by the individual or firm. It shows the return from each action that the players can take in a game. Therefore, the correct option is C.