# payoffs for an advertising game between Coke and Pepsi

Where calculations are needed, please show step-by-step calculations used to arrive at your answer (s)

A monopolist has demand and cost curves given by:

QD = 10,000 - 20P

TC = 1,000 + 10Q + .05Q2

a. Find the monopolist's profit-maximizing quantity and price.

b. Find the monopolist's profit.

The following matrix shows the payoffs for an advertising game between Coke and Pepsi. The firms can choose to advertise or to not advertise. Numbers in the matrix represent profits; the first number in each cell is the payoff to Coke. (Numbers in millions.)

Coke (rows)/Pepsi (columns) Advertise Don't Advertise

Advertise (10, 10) (500, -50)

Don't Advertise (-50, 500) (100, 100)

a. Explain why this would be described as a Prisoner's Dilemma game.

b. Explain the probable outcome of this game.