Question

Assume that 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. If you and your rival plan to be in business for 10 years, then the Nash equilibrium is:

Answer 1

The Nash Equilibrium is for both firms not to advertise

Step-by-step explanation:

the payoff matrix should be something like this:

Firm B

to advertise not to advertise

to advertise $4 / $4 $1 / $5

Firm A

not to advertise $5 / $1 $10 / $10

Both firms' dominant strategy is not to advertise.