Question

Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 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 $15 million and the non-advertising firm will earn $1 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is:

A. for each firm to advertise.
B. for neither firm to advertise.
C. for your firm to advertise and the other not to advertise.
D. None of the preceding answers is correct

Answer 1

For each firm to advertise

Step-by-step explanation:

The Nash Equilibrium is a concept within game theory where the optimal outcome of a game is where there is no incentive to deviate from their initial strategy. More specifically, the Nash equilibrium is a concept of game theory where the optimal outcome of a game is one where no player has an incentive to deviate from his chosen strategy/after considering an opponent's choice.

In Nash equilibrium, each player's strategy is optimal when considering the decisions of other players. Every player wins because everyone gets the outcome they desire, that's why in the above scenario its advisable that each firm to advertise every year.