Question

11. Abe, Bob and Cliff are competitors in a local market, and each is trying to decide if it is worthwhile to advertise. If all of them advertise, each will earn a profit of $105,000. If none of them advertise, each will earn a profit of $140,000. If only one of them advertises, the one who advertises will earn a profit of $125,000 and the other two will each earn $90,000. If two of them advertise, those two will each earn a profit of $115,000 and the other one will earn $70,000. If all three follow their dominant strategy, Abe _________ advertise and earn __________ of profit.
A. will; $105,000.
B. will;$125,000.
C. will; $115,000.
D. will not; $70,000.
E. will not; $140,000.

12. Ann, Beth and Carla are competitors in a local market, and each is trying to decide if it is worthwhile to advertise. If all of them advertise, each will earn a profit of $150,000. If none of them advertise, each will earn a profit of $180,000. If only one of them advertises, the one who advertises will earn a profit of $210, 000 and the other two will each earn $130,000. If two of them advertise, those two will each earn a profit of $190,000 and the other one will earn $100,000. If all three follow their dominant strategy, Beth ________ advertise and earn __________ of profit.
A. will; $210,000.
B. will; $190,000.
C. will; $150,000.
D. will not; $180,000.
E. will not; $130,000.

Answer 1

a) The dominant strategy in the market is to advertise, and all of them will be advertising at the same time because the person advertising will be making a larger profit in the market as compared to the others, So the answer is Abe will advertise and earn a profit of 105,000. The answer is "A".

b) Just like the previous case here also all of them will be advertising because the one not advertising will be making a less profit and people advertising will be making larger profits. the answer is "C".