Consider the following information for a static game. If you advertise and your

Question

Consider the following information for a static game. If you advertise and your rival advertises, you each will earn $5 million in profits. If you choose not to advertise and your rival chooses not to advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the firm that does not advertise will earn $1 million. Assuming that each player cares only about his or her own profits, the Nash equilibrium is

A. for each firm to advertise.
B. for neither firm to advertise.
C. for your firm to advertise and the other not to advertise.
D. None of the above.

Explanation / Answer

A. for each firm to advertise (neither player can gain from changing their strategy).

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