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Suppose that Creamland and Dairy King are the only two firms that sell ice cream. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Dairy King Advertises Doesn't Advertise Advertises 8, 8 15, 2 Creamland 2, 15 9,9 Doesn't Advertise For example, the upper-right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $15 million, and Dairy King will make a profit of $2 million. Assume this is a simultaneous game and that Creamland and Dairy King are both profit-maximizing firms. If Creamland decides to advertise, it will earn a profit of S ] million if Dairy King advertises and a profit of S ] million if Dairy King does not advertise. If Creamland decides not to advertise, it will earn a profit of s million if Dairy King advertises and a profit of | million if Dairy King does not advertise. If Dairy King advertises, Creamland makes a higher profit if it chooses If Dairy King doesn't advertise, Creamland 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? Both firms will choose not to advertise. Both firms will choose to advertise. Creamland will choose not to advertise and Dairy King will choose to advertise. Creamland will choose to advertise and Dairy King 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 not to advertise. Creamland will choose to advertise and Dairy King will choose not to advertise. Creamland will choose not to advertise and Dairy King will choose to advertise. O Both firms will choose to advertise.

Suppose that Creamland and Dairy King are the only two firms that sell ice cream. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Dairy King Advertises Doesn't Advertise Advertises 8, 8 15, 2 Creamland 2, 15 9,9 Doesn't Advertise For example, the upper-right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $15 million, and Dairy King will make a profit of $2 million. Assume this is a simultaneous game and that Creamland and Dairy King are both profit-maximizing firms. If Creamland decides to advertise, it will earn a profit of S ] million if Dairy King advertises and a profit of S ] million if Dairy King does not advertise. If Creamland decides not to advertise, it will earn a profit of s million if Dairy King advertises and a profit of | million if Dairy King does not advertise. If Dairy King advertises, Creamland makes a higher profit if it chooses If Dairy King doesn't advertise, Creamland 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? Both firms will choose not to advertise. Both firms will choose to advertise. Creamland will choose not to advertise and Dairy King will choose to advertise. Creamland will choose to advertise and Dairy King 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 not to advertise. Creamland will choose to advertise and Dairy King will choose not to advertise. Creamland will choose not to advertise and Dairy King will choose to advertise. O Both firms will choose to advertise.

Principles of Microeconomics (MindTap Course List)
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter17: Oligopoly
Section: Chapter Questions
Problem 9PA
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It might be easier for Creamland and Dairy King to achieve the cooperative outcome of the game if: It were difficult to monitor whether the other player was advertising The payoffs of the game were doubled The game had repeated trials O The payoffs of the game were cut in half
Transcribed Image Text:It might be easier for Creamland and Dairy King to achieve the cooperative outcome of the game if: It were difficult to monitor whether the other player was advertising The payoffs of the game were doubled The game had repeated trials O The payoffs of the game were cut in half
Suppose that Creamland and Dairy King are the only two firms that sell ice cream. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Dairy King Advertises Doesn't Advertise Advertises 8, 8 15, 2 Creamland Doesn't Advertise 2, 15 9, 9 For example, the upper-right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $15 million, and Dairy King will make a profit of $2 million. Assume this is a simultaneous game and that Creamland and Dairy King are both profit-maximizing firms. If Creamland decides to advertise, it will earn a profit of $ | million if Dairy King advertises and a profit of S million if Dairy King does not advertise. If Creamland decides not to advertise, it will earn a profit of $ |million if Dairy King advertises and a profit of S million if Dairy King does not advertise. If Dairy King advertises, Creamland makes a higher profit if it chooses If Dairy King doesn't advertise, Creamland 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? Both firms will choose not to advertise. Both firms will choose to advertise. Creamland will choose not to advertise and Dairy King will choose to advertise. Creamland will choose to advertise and Dairy King 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 not to advertise. Creamland will choose to advertise and Dairy King will choose not to advertise. Creamland will choose not to advertise and Dairy King will choose to advertise. Both firms will choose to advertise.
Transcribed Image Text:Suppose that Creamland and Dairy King are the only two firms that sell ice cream. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Dairy King Advertises Doesn't Advertise Advertises 8, 8 15, 2 Creamland Doesn't Advertise 2, 15 9, 9 For example, the upper-right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $15 million, and Dairy King will make a profit of $2 million. Assume this is a simultaneous game and that Creamland and Dairy King are both profit-maximizing firms. If Creamland decides to advertise, it will earn a profit of $ | million if Dairy King advertises and a profit of S million if Dairy King does not advertise. If Creamland decides not to advertise, it will earn a profit of $ |million if Dairy King advertises and a profit of S million if Dairy King does not advertise. If Dairy King advertises, Creamland makes a higher profit if it chooses If Dairy King doesn't advertise, Creamland 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? Both firms will choose not to advertise. Both firms will choose to advertise. Creamland will choose not to advertise and Dairy King will choose to advertise. Creamland will choose to advertise and Dairy King 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 not to advertise. Creamland will choose to advertise and Dairy King will choose not to advertise. Creamland will choose not to advertise and Dairy King will choose to advertise. Both firms will choose to advertise.
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