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 hand your business down to your children (and this "bequest" goes on forever), then a Nash equilibrium is for each firm to:
A. always advertise.
B. advertise until the rival does not advertise, and then not advertise forever.
C. not advertise until the rival does, and then to advertise forever.
D. never advertise.
Answer: D
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A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease
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A) decrease; frictional B) increase; frictional C) increase; cyclical D) decrease; cyclical
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Under a marketing quota system,
A) the government sets a limit on the quantity of a product that a farmer is allowed to bring to market. B) farmers are paid to take part of their land out of cultivation. C) farmers are given limits as to the number of acres that can be used to produce a particular product. D) farmers are paid the difference between the market price of their product and a governmentally determined price that would maintain an established price parity. E) the government establishes a minimum price that farmers will be paid for their product, which causes the farmers to cut back on the number of acres planted.