Problem: Suppose Firms A and B sells competing products and is deciding whether to undertake advertising campaigns. Each firm will be affected by its competitor decision. The possible outcomes of the game are illustrated by the payoff matrix below.
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Payoff Matrix for Advertising game
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Firm B
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Firm A
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Advertise
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Don't advertise
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Advertise
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10, 5
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15, 0
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Don't Advertise
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6. 8
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10, 2
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Question 1: What strategy should each firm choose? Give reasons why?
Question 2: Does this game have Nash equilibrium? Explain?
Question 3: Would your answer been different had there been the payoff matrix like the one below? Explain.
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Payoff Matrix for Advertising game
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Firm B
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Firm A
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Advertise
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Don't advertise
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Advertise
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10, 5
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15, 0
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Don't Advertise
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6. 8
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20, 2
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