Firms M and N compete for a market and must independently decide how much to advertise. Each can spend either $10 million or $20 million on advertising. If the firms spend equal amounts, they split the $120 million market equally. If one firm spends $20 million and the other $10 million, the former claims 2/3 and the latter 1/3.
A. Fill in the profit entries in a payoff table. [?,?][?,?]
B. If the firms act independently, what advertising level should each choose? explain. Is the prisoner's dilemma present?
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