Now that Sprint and T-Mobile have merged (shall we say T-Sprint?), it's a whole new Advertising game with Verizon.

(a) (2 pts) Verizon is considering advertising. If its advertising makes demand more elastic, what should it plan to do with price? Explain your answer.

(b) (5 pts) Set up this 2-by-2 game and solve for the equilibrium and payout given the following info:

• If neither Verizon nor T-Sprint advertises (No Ad), the market has earnings of $30M, with each firm getting half.
• If both firms advertise (Ad), the market has earnings of $34M, with each firm getting half.
• If one does Ad (and the other does No Ad), then the market increases to $33M, with the Ad firm taking $20M (and the No Ad firm the rest).
• Ad costs $3M for either firm.

Note: You can use the option on the last question to upload a file. Alternatively, you can click "Show Rich-Text Editor" and then insert a table, making sure it has 4 rows and 4 columns.

(c) (2 pts) Is this a Prisoner's Dilemma? Explain.