Answer to Question #83908 in Microeconomics for ahmed

Question

In a small town there are two sushi restaurants. If neither restaurant advertises, revenue will not change. If only one firm advertises, that firm will double its revenue and the firm that doesn’t advertise will see a decrease in revenue. But if both firms advertise, their revenue will not change. What outcome is predicted by game theory (Nash Equilibrium)? (2)
a) Both restaurants will advertise
b) One restaurant will advertise
c) Neither restaurant will advertise
d) Game theory is a load of bunk
e) Sometimes only one firm will advertise and the rest of the time both firms will advertise

Answer 1

According to the game theory (Nash Equilibrium) the equilibrium outcome is that both restaurants will advertise.

So, the correct answer is a).