Problem 1) Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn 5 million in profits. If neither of you advertise, you will each earn 10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn 15 million and the non advertising firm will earn 1 million.

Answer the following questions

(a) Please draw the payoff matrix for this game

(b) What is the outcome of this game? What payoff will each firm earn?

(c) What is the reasoning that you have followed in order to arrive at this outcome?

(d) Is this a Prisoner's Dilemma ? Why or why not?

(e) Suppose that this game is played sequentially instead of simultaneously, and that you decide first. Draw the game tree of this game. What is the equilibrium of this sequential game? How did you arrive to this conclusion?