Question

Consider two companies, Udderly Delicious and Banana Splitz, that sell ice cream. The firms face a decision to advertise or not. Assume the firms cannot collude. Each firm’s decision is influenced by what the other decides. The payoff matrix shows the profit earned by each firm given 4 possible outcomes. Given the above payoff matrix, Banana Splitz best course of action will be to _______________ given a decision by Udderly Delicious not to advertise

Supporting Materials

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a) advertise

b) not to advertise

Question 14

Consider two ice cream companies, Udderly Delicious and Banana Splitz. The firms face a decision to advertise or not. Assume the firms cannot collude. Each firm’s decision is influenced by what the other decides. The payoff matrix shows the profit earned by each firm given 4 possible outcomes. Given the above payoff matrix, what will each firm decide to do?

Supporting Materials

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a) Banana Splitz will advertise and Udderly Delicious will not

b) Udderly Delicious will advertise and Banana Splitz will not

c) Both firms will decide to advertise

d) Both firms will not advertise

Banana Splitz Ice Cream Advertize Dont advertize $1200 $1000 Advertize $2000 $1200 Udderly Delicious Ice Cream $2000 $1500 Dont Advertize $1000 $1500 Banana Splitz Ice Cream Advertize Dont advertize $1200 $1000 Advertize $2000 $1200 Udderly Delicious Ice Cream $2000 $1500 Dont Advertize $1000 $1500

Answer 1

1) If udderly delicious don't advertise then if Banana advertise then it's profit is 2000 and if Banana don't advertize then it's payoff is 1500.Thus its best strategy should be to Advertize.

14)Ans is c

For both players, advertisement is the dominant strategy which players plays irrespective of other players strategy and when both advertise then no player has any incentive to change their strategy given the strategy of other