Consider two craft bourbons distilled in Brooklyn, New York: Kings County and Stillhouse. If the distilleries advertise, they can both sell more bourbon and increase their revenue. However, the cost of advertising more than offsets the increased revenue
so that each distillery ends up with a lower profit than if they do not advertise. On the other hand, if only one advertises, that distillery increases its market share and also its profit.
a. Construct a payoff matrix using the following hypothetical information: If neither distillery advertises: each earns a profit of $500,000 per year. If both advertise: each earns a profit of $250,000 per year. If one advertises and the other does not: the distillery that advertises earns a profit of $750.000 and the distillery that does not advertise earns a profit of $125,000.
b. If the two distilleries agree to coordinate their strategies, what is the outcome?
a. The payoff matrix:
b. If the two distilleries agree to coordinate their strategies, then they would choose not to advertise.
You might also like to view...
During a period of hyperinflation, as households and firms avoid holding money,
A) potential GDP increases. B) long term savings accounts become more popular. C) barter becomes more common. D) the costs of inflation decrease. E) capital investment increases.
Farmer Brady sells wheat in a market where sellers are price takers. Which of the following is true in regard to Farmer Brady's production and pricing decisions?
a. Farmer Brady will be able to increase the total revenue from the sale of his wheat if he increases the price of the wheat. b. Since the market dictates the price of his product, Farmer Brady will have no incentive to minimize per-unit production costs. c. Since the market dictates the price of his product, Farmer Brady has no production decisions to make. d. It would be senseless for Farmer Brady to try to increase sales by lowering the price of his product. His entire output can be sold at the market price.
The present value of $100 to be paid in two years is less than the present value of $100 to be paid in three years
a. True b. False Indicate whether the statement is true or false
The heart of the argument against an increase in the minimum wage is one based on
A. the elasticity argument. B. consumer and producer surplus analysis. C. the macroeconomic argument. D. the work effort argument.