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Suppose there are two firms competing in the market for dentures. Each firm has to decide whether or not to advertise their product. The first firm, Chewy Chew, has been in the market for some time and has name recognition, while the second firm, Bitey Bite, is newer and has less name recognition. In general, firms make more money if they both don’t advertise because the cost of advertising is high. However, if one company advertises and the other does not, the firm that advertises captures a larger share of the market and makes larger profits. The profits for each firm for the various outcomes of the game are listed below.

Firm 1 ChewyChew Firm 2 Bitey Bite Advertise Dont Advertise 10,5 20,-5 9,16 30,6 Advertise Dont Advertise

a. suppose that these firms will play this game forever. Will an interest rate of 15% result in the firms achieving the cooperative outcome?

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