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

Question

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):

1.
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 $2 mill.
c. Papa Johns would eliminate $2 mill; Pizza Hut would eliminate $1 mill.
d. Papa Johns would eliminate $3 mill; Pizza Hut would eliminate $1 mill.

2.
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. Both companies eliminate $2 mill in the second round.
c. Papa Johns wouldn't eliminate either; Pizza Hut would eliminate $2 mill.
d. Papa Johns would eliminate $1 mill; Pizza Hut wouldn't eliminate either.

3.
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. Both would choose $3 mill.
b. Papa Johns would choose $1 mill; Pizza Hut would choose $2 mill.
c. Both would choose $2 mill.
d. Papa Johns would choose $3 mill; Pizza Hut would choose $1 mill.

PIZZA HUT PIZZA HUT PIZZA HUT $1 mill $2 mill $3 mill PAPA JOHNS $1 mill $60/$55 $70/$60 $20/$65 PAPA JOHNS $2 mill $80/$40 $40/$55 $60/$50 PAPA JOHNS $3 mill $85/$35 $67/$45 $65/$55

Explanation / Answer

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

2. c. Papa Johns wouldn't eliminate either; Pizza Hut would eliminate $2 mill.

3. a. Both would choose $3 mill.

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