Author Question: Refer to the scenario above. Suppose the cost of advertising in this industry is very high and each ... (Read 75 times)

luvbio · **on:** Jun 29, 2018

Refer to the scenario above. Suppose the cost of advertising in this industry is very high and each company will incur a cost of 3 million annually if they choose to advertise. Which of the following is true in this case?

A) Company A's best response is to advertise if Company B advertises.
B) Company B's best response is to advertise irrespective of what Company A does.
C) Company A's dominant strategy is to advertise.
D) This game does not have a dominant strategy equilibrium.

Question 2

The basic idea behind moral hazard is that ________.

A) some economic transactions impose an additional cost on society
B) some economic transactions give rise to an additional benefit to society
C) people tend to take more risks if they do not have to bear the costs of their behavior
D) people do not reveal their true preference for goods that are non-excludable in consumption