Table 11-9 Alistair Luggage and Baine Baggage Are the Only Firms Selling

Table 11-9
$\begin{array}{c}\text { Alistair's (A) Choices }\\\text { Baine's (B) Choices }\begin{array}{|c|c|c|}\hline & \begin{array}{c}\text { Increase } \\\text { advertising } \\\text { budget }\end{array} & \begin{array}{c}\text { Leave } \\\text { advertising } \\\text { budget as is }\end{array} \\\hline \begin{array}{c}\text { Increase advertising } \\\text { budget }\end{array} & \begin{array}{c}\text { A: } \$ 30,000 \text { profit } \\\text { B: } \$ 30,000 \text { profit }\end{array} & \begin{array}{c}\text { A: } \$ 10,000 \text { profit } \\\text { B: } \$ 50,000 \text { profit }\end{array} \\\hline \begin{array}{c}\text { Leave advertising } \\\text { budget as is }\end{array} & \begin{array}{c}\text { A: } \$ 50,000 \text { profit } \\\text { B: } \$ 10,000 \text { profit }\end{array} & \begin{array}{c}\text { A: } \$ 40,000 \text { profit } \\\text { B: } \$ 40,000 \text { profit }\end{array} \\\hline\end{array}\end{array}$
Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito. Each firm must decide on whether to increase its advertising spending to compete for customers.If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table 11-9 shows the payoff matrix for this advertising game.
-Refer to Table 11-9.What is the Nash equilibrium in this game?

A) There is no Nash equilibrium.
B) Baine increases its advertising budget, but Alistair does not.
C) Alistair increases its advertising budget, but Baine does not.
D) Both Alistair and Baine increase their advertising budgets.

Correct Answer:

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