1.The American cigarette industry is an example of an industry where the most important effect of advertising is to convince consumers who already smoke to switch brands.Two cigarettes must decide whether it is worth it to bear the cost of advertising.

If they don't advertise, they earn a profit of 500.

If both advertise, no brand switching occurs.Advertising costs 250 so each earn a profit of 250.

If one advertises and the other doesn't, the one that advertises earns 750, while the one that doesn't, earns 0.

Call the 2 firms Phillip Morris and Brown and Williamson.

a.Write out the payoff matrix for the game.

b.Do the two firms have dominant strategies to play?Explain.

c.What is the Nash equilibrium of this game?Explain.

d.Congress passed a law forbidding the advertising of cigarettes on TV effective January 1, 1971 in order to protect people from "dangerous messages" over the airways.In what way did this law benefit cigarette manufacturers?Explain.