Answer:
1. a. $75,000
b. $90,000
c. A. Both firms advertise.
Explanation:
1. a. Tumbleweed profits when both advertise.
When both advertise they get an increased revenue of $15,000 however they will pay $20,000 for adverts which means they will have a net gain from advertising of -$5,000.
Tumbleweed profits = Amount when non advertises + Gain from advertising
= 80,000 + ( - 5,000)
= $75,000
b. Native Roots profit if both advertise;
= Amount when non advertises + Gain from advertising
= 95,000 + ( 15,000 - 20,000)
= $90,000
2. A. Both firms advertise.
The Nash Equilibrium is the strategy that either of the two plant nurseries will take and not have to worry about the actions of the other nursery because this strategy provides the highest payoff regardless of their competitors actions.
Both firms advertising will be that strategy because if neither advertise, one will then advertise and the other would make losses so will then advertise as well.