Question

Two firms compete by advertising. Given the payoff matrix to this advertising​ game, identify each​ firm's best response to its​ rival's possible actions. If Firm 2 does not​ advertise, then Firm 1 should ▼ advertise not advertise and if Firm 2​ advertises, then Firm 1 should ▼ not advertise advertise . If Firm 1 does not​ advertise, then Firm 2 should ▼ not advertise advertise and if Firm 1​ advertises, then Firm 2 should ▼ not advertise advertise . Does either firm have a dominant​ strategy? Firm​ 1's dominant strategy is to ▼ not advertise advertise and Firm​ 2's dominant strategy is to ▼ not advertise advertise . What is the Nash​ equilibrium? A. The Nash equilibrium is for both firms to advertise. B. The Nash equilibrium is for Firm 1 to advertise and Firm 2 to not advertise. C. This game has no Nash equilibria. D. The Nash equilibrium is for both firms to not advertise. E. The Nash equilibrium is for Firm 1 to not advertise and Firm 2 to advertise.

Answer 1

Answer:

If Firm 2 does not advertise, Firm 1 should advertise

If Firm 2 advertises, then Firm 1 should also advertise

Firm 1 dominant strategy is to advertise

Firm 2 dominant strategy is to advertise

1. A. Nash equilibrium is for both Firms to advertise.

Explanation:

Nash equilibrium is a state where interactions by different firms in a matrix is involved. No firm can gain by a unilateral change of strategy if other firm does not changes its strategy. It is a situation where there is optimal when there is no deviation from the initial strategy. Here firm 1 can by advertise and Firm 2 can also optimize by advertising.