Answer to Question #98818 in Microeconomics for mackenzie

Question

Net and Red each expect gross profit of 100,000 in the coming year. Net thinking that it would like to see its net profits rise by more considers advertising during Super bowl. An ad will cost 80,000. If Net advertises and Red does not, Net expects its gross profits to rise by 230,000 while Reds profits will only rise 50,00 instead of 100,000. If both firm advertise their profits will rise the same as if neither advertised, except they spent 80,000 for the ad. Create a profit matrix only including net profits.

Answer 1

Red

Advertise Not Advertise

Advertise 20,000/20,000 150,000/50,000

Net

Not Advertise 50,000/150,000 100,000/100,000

Net profit = Gross profit - Cost