Consider two beer producers, POTUS Pilsner and Supreme Court Stout. If they advertise, they can both sell more beer and increase their revenue. However, the cost of advertising more than offsets the increased revenue so that each producer ends up with a lower profit than if they do not advertise. On the other hand, if only one advertises, that producer increases its market share and also its profit.

1. Construct a payoff matrix using the following hypothetical information: If neither producer advertises, each earns a profit of $35 million per year. If both advertise, each earns a profit of $20 million per year. If one advertises and the other does not, the producer who advertises earns a profit of $50 million and the producer who does not advertise earns a profit of $9 million.
2. If POTUS Pilsner wants to maximize profit, will it advertise? Briefly explain.
3. If Supreme Court Stout wants to maximize profit, will it advertise? Briefly explain.
4. Is there a dominant strategy for each producer? Briefly explain.

Answer rating: 100% (QA)

Payoff Matrix POTUS Pilsner Supreme Court Stout Advertises Doesnt advertise Advertises 50 9 20 20 Do... View the full answer