Question

Suppose that Expresso and Beantown are the only two firms that sell coffee. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises:

Beantown
Advertise Doesn’t Advertise
Expresso Advertise 10, 10 18, 2
Doesn’t Advertise 2, 18 11, 11

For example, the upper right cell shows that if Expresso advertises and Beantown doesn't advertise, Expresso will make a profit of $18 million, and Beantown will make a profit of $2 million. Assume this is a simultaneous game and that Expresso and Beantown are both profit-maximizing firms.

If Expresso decides to advertise, it will earn a profit of:_____

a. million if Beantown advertises and a profit of
b. million if Beantown does not advertise.

Answer 1

Answer:

(a) $10 million

(b) $18 million

Explanation:

Given that,

Payoff matrix is as follows:

                                                               Beantown

                                                 Advertise            Doesn’t Advertise

Expresso   Advertise               (10, 10)                      (18, 2)

                  Doesn’t Advertise (2, 18)                        (11, 11)

(a) If Expresso decides to advertise, it will earn a profit of $10 million if Beantown advertises, it follows the strategy (Advertise, Advertise).

(b) He earns a profit of $18 million if Beantown does not advertise, here it follows the strategy (Advertise, Doesn't Advertise).

Answer 2

(a) In the case when  Beantown advertises $10 million

(b) In the case when Beantown does not advertise $18 million

• The calculation is as follows:

Payoff matrix is as follows:  

                                                              Beantown  

                                                Advertise            Doesn’t Advertise  

Expresso   Advertise               (10, 10)                      (18, 2)  

                 Doesn’t Advertise (2, 18)                        (11, 11)

(a) In the case when Expresso decides to advertise, it will earn a profit of $10 million when Beantown advertises, it follows the strategy (Advertise, Advertise).

(b) He earns a profit of $18 million in the case when Beantown does not advertise, here it follows the strategy (Advertise, Doesn't Advertise).

Therefore we can conclude that

(a) In the case when  Beantown advertises $10 million

(b) In the case when Beantown does not advertise $18 million

Learn more: brainly.com/question/6201432