Question
(for both of the If Pop Hop advertises, the options are either if he chooses not to advertise, or if he chooses to advertise)
Suppose that Fizzo and Pop Hop are the only two firms that sell orange soda. The table that follows (known as a payoff matrix) shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises. For example, the upper right cell shows that if Fizzo advertises and Pop Hop doesn't advertise, Fizzo will make a profit of $10 million and Pop Hop will make a profit of $1 million. Both Fizzo and Pop Hop are profit-maximizing firms. If Fizzo decides to advertise, it will earn a profit of if Pop Hop advertises and a profit of if Pop Hop does not advertise. If Fizzo decides not to advertise, it will earn a profit of If Pop Hop advertises and a profit of if Pop Hop does not advertise. If Pop Hop advertises, Fizzo makes a higher profit if it chooses If Pop Hop doesn't advertise, Fizzo makes a higher profit if it chooses Suppose that both firms start off not advertising. If the firms act independently, what strategies will they end up choosing? Fizzo will choose to advertise, and Pop Hop will choose not to advertise. O Both firms will choose to advertise. Fizzo will choose not to advertise, and Pop Hop will choose to advertise. O Both firms will choose not to advertise. Again, suppose that both firms start off not advertising. If the firms decide to collude, what strategies will they end up choosing? Both firms will choose to advertise. Fizzo will choose to advertise, and Pop Hop will choose not to advertise. Fizzo will choose not to advertise, and Pop Hop will choose to advertise. Both firms will choose not to advertise.
Explanation / Answer
4,10
1,8
to advertise
to advertise
both firms choose not to advertise
both firms choose not to advertise
