Imagine two competitor firms are deciding whether to advertise their products or not. Advertising costs the firms money, but it also increases sales. If only one of the two firms advertises, that firm will take almost all of the sales. If both firms advertise, or both firms do not advertise, then they will have about half the sales each. Here are their payoffs. Firm A Advertise Don't advertise Advertise 20 20 0 80 * Firm B Don't Advertise 80 0 50 50 a) Find any Nash equilibria in the game. b) Discuss and explain the Pareto-optimality of any equilibria you find. c) Discuss how you might achieve stable Pareto-optimality.
Imagine two competitor firms are deciding whether to advertise their products or not. Advertising costs the firms money, but it also increases sales. If only one of the two firms advertises, that firm will take almost all of the sales. If both firms advertise, or both firms do not advertise, then they will have about half the sales each. Here are their payoffs. Firm A Advertise Don't advertise Advertise 20 20 0 80 * Firm B Don't Advertise 80 0 50 50 a) Find any Nash equilibria in the game. b) Discuss and explain the Pareto-optimality of any equilibria you find. c) Discuss how you might achieve stable Pareto-optimality.
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter17: Oligopoly
Section: Chapter Questions
Problem 5PA
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Question
![Imagine two competitor firms are deciding whether to advertise their products or
not. Advertising costs the firms money, but it also increases sales. If only one of
the two firms advertises, that firm will take almost all of the sales. If both firms
advertise, or both firms do not advertise, then they will have about half the sales
each. Here are their payoffs.
Firm A
Advertise
Don't advertise
Advertise
20 20
0 80
*
Firm B
Don't Advertise
80 0
50 50
a) Find any Nash equilibria in the game.
b) Discuss and explain the Pareto-optimality of any equilibria you find.
c) Discuss how you might achieve stable Pareto-optimality.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F534c8033-91e0-4e52-b875-cc50ac17a8d3%2F2030fa50-0d96-4a94-b5e8-a08b145c8d6a%2F4vgsijt_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Imagine two competitor firms are deciding whether to advertise their products or
not. Advertising costs the firms money, but it also increases sales. If only one of
the two firms advertises, that firm will take almost all of the sales. If both firms
advertise, or both firms do not advertise, then they will have about half the sales
each. Here are their payoffs.
Firm A
Advertise
Don't advertise
Advertise
20 20
0 80
*
Firm B
Don't Advertise
80 0
50 50
a) Find any Nash equilibria in the game.
b) Discuss and explain the Pareto-optimality of any equilibria you find.
c) Discuss how you might achieve stable Pareto-optimality.
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