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5. To advertise or not to advertise Suppose that two firms, Hatte Latte and Bean Bruuer, are the only sellers of espresso in some hypothetical
5. To advertise or not to advertise Suppose that two firms, Hatte Latte and Bean Bruuer, are the only sellers of espresso in some hypothetical market. The following payoff matrix gives the profit (in millions of dollars) earned by each company depending on whether or not it chooses to advertise: Bean Bruuer Advertise Doesn't Advertise Hatte Latte Advertise 8, 8 15, 2 Doesn't Advertise 2, 15 11, 11 For example, the lower left cell of the matrix shows that if Bean Bruuer advertises and Hatte Latte does not advertise, Bean Bruuer will make a profit of $15 million, and Hatte Latte will make a profit of $2 million. Assume this is a simultaneous game and that Hatte Latte and Bean Bruuer are both profit-maximizing firms. If Hatte Latte chooses to advertise, it will earn a profit of $ million if Bean Bruuer advertises and a profit of $ million if Bean Bruuer does not advertise. If Hatte Latte chooses not to advertise, it will earn a profit of $ million if Bean Bruuer advertises and a profit of $ million if Bean Bruuer does not advertise. If Bean Bruuer advertises, Hatte Latte makes a higher profit if it chooses
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