Question

McDonald and Burger King are two firms in fastfood market.They both advertise aggresively.Construct a pay-off matrix...

McDonald and Burger King are two firms in fastfood market.They both advertise aggresively.Construct a pay-off matrix using the following information:

If neither firrm advertises, McDonald and Burger King each earn a profit of 750 million $ per year.

If both firm advertise McDonald and Burger King each earn a profit of 500 million $ per year.

If McDonald advertises and Burger King doesn’t, McDonald earns a profit of 900 million $ Burger King earns a profit of 400 million $.

If Burger King advertises and McDonald doesn’t Burger King earns a profit of 900 million $ and McDonald earns a profit of 400 million$.

  1. If McDonald wants to maximize profit will it advertise? Explain your answer
  2. If Burger King wants to maximize profit will it advertise? Explain your answer.

Is there a Nash equilibrium to this advertising game? Explain your answer

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