11. The payoff matrix shown to the right describes the situation faced by two Firms in a different industry than in the previous question. If the Firms have to make a decision once and for all about advertising you should predict that:
  1. both Firms 1 and 2 will play their dominant strategies and earn profits of 40 each.
  2. Firm 1 will advertise and earn a profit of 30 while Firm 2 will not advertise and earn a profit of 14.
  3. the Firms will use a mixed strategy randomly choosing advertise or don't advertise.
  4. both Firms 1 and 2 will play their dominant strategies and earn profits of 20 each.
  5. the Firms will settle on the Nash equilibrium in which they both advertise.

Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved