Answer to Question #152140 in Macroeconomics for ASMITA CHATTERJEE

Question

Two amusement parks that are located on either side of a highway are considering promotional advertising campaigns to stimulate demand. If both parks advertise, then both will experience a $20 thousand increase in profits. If Park A advertises and Park B does not, then Park A will experience a $10 thousand dollar increase in profits and Park B will experience a $5 thousand increase in profits. If Park B advertises and Park A does not, then Park A will experience a $30 thousand increase in profits and Park B will experience a $10 thousand increase in profits. If neither park advertises, then profits will remain constant.
Use this information to construct a payoff matrix.
Determine each park's optimal strategy. Is this a prisoners' dilemma?
Does either park have a dominant strategy? Is there a Nash equilibrium and, if there is, what is it?

Answer 1

Optimal strategy of A is that it does not depends so much on B for it to make profit. Park B depends so much on advertisements of park A. Dominant strategy is that park B dominate over park A. In this situation, the prisoner's dilemma doe not exist. There is Nash equilibrium in such that if park A don't advertise, park B will make minimal profits and vise versa.