The following is a payoff matrix showing profit in millions of dollars when two

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The following is a payoff matrix showing profit in millions of dollars when two companies simultaneously decide on various advertising budgets ($1 million, $2 million, or $3 million):

Question 9

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In the first round of strategy elimination (when all three possible budgets are under consideration), which ad budget would the companies exclude?

Select one:

a. Papa Johns would eliminate $1 mill; Pizza Hut would eliminate $2 mill.

b. Papa Johns would eliminate $2 mill; Pizza Hut would eliminate $3 mill.

c. Papa Johns would eliminate $3 mill; Pizza Hut would eliminate $1 mill.

d. Papa Johns would eliminate $3 mill; Pizza Hut would eliminate $3 mill.

Question 10

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After the first round of elimination (previous question), would either company make a second-round elimination?

Select one:

a. Neither company would eliminate in the second round.

b. Papa Johns would eliminate $3 mill; Pizza Hut would eliminate $2 mill.

c. Papa Johns eliminates $2 mill; Pizza Hut eliminates $2 mill.

d. Papa Johns would not eliminate either; Pizza Hut would eliminate $1 mill.

Question 11

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What would be the likely outcome of this simultaneous advertising decision (i.e. what ad budget would each company end up choosing)?

Select one:

a. Papa Johns would choose $3 mill; Pizza Hut would choose $1 mill.

b. Both would choose $1 mill.

c. Papa Johns would choose $1 mill; Pizza Hut would choose $3 mill.

d. Papa Johns would pick $1 mill; Pizza Hut would pick $2 mill.

Blank for Formatting Pizza Hut Advertising Budget: $1 mill Pizza Hut Advertising Budget: $2 mill Pizza Hut Advertising Budget: $3 mill Papa John's Advertising Budget: $1 mill $30/$20 $40/$25 $40/$15 Papa John's Advertising Budget: $2 mill 35/25 30/30 45/20 Papa John's Advertising Budget: $3 mill 20/40 25/35 30/25

Explanation / Answer

9. d. Papa Johns would eliminate $3 mill; Pizza Hut would eliminate $3 mill.

Both would eliminate $ 3 mill because its payoff is lower than as compared to both other strategies of choosing $ 1 mill or $ 2 mill.

10. d. Papa Johns would not eliminate either; Pizza Hut would eliminate $1 mill.

Papa Johns would not eliminate after eliminating $ 3 mill because there is no perfect strategy in which Papa Johns earns higher payoff irrespective of Pizza Hut decision. On the other hand, Pizza Hut would eliminate $ 1 mill because it provides less payoff as compared to $ 2 mill irrespective of decision of Papa John.

11. d. Papa Johns would pick $1 mill; Pizza Hut would pick $2 mill.

Pizza Hut left with only $ 2 mill so it will choose $ 2 mill while Papa Johns will choose $ 1 mill because it gives higher payoff.

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