3) Consider two craft bourbons distilled in Brooklyn, New York: Kings County and Stillhouse. If the distilleries

advertise, they can both sell more bourbon and increase their revenue. However, the cost of advertising more than

offsets the increased revenue so that each distillery ends up with a lower profit than if they do not advertise. On

the other hand, if only one advertises, that distillery increases its market share and also its profit.

a. Construct a payoff matrix using the following hypothetical information: If neither distillery advertises, each

earns a profit of $500,000 per month. If both advertise, each earns a profit of $250,000 per month. If one advertises

and the other does not, the distillery that advertises earns a profit of $750,000 and the distillery that does not

advertise earns a profit of $125,000.

b. If Kings County wants to maximize profit, will it advertise? Briefly explain.

c. If Stillhouse wants to maximize profit, will it advertise? Briefly explain.

d. Is there a dominant strategy for each distiller? Briefly explain.