Suppose two firms, Genera Pharma and Futura Pharma, are the only two producers of a specific drug. Genera and Futura hav

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Suppose Two Firms Genera Pharma And Futura Pharma Are The Only Two Producers Of A Specific Drug Genera And Futura Hav 1 (117.39 KiB) Viewed 35 times

Suppose two firms, Genera Pharma and Futura Pharma, are the only two producers of a specific drug. Genera and Futura have the same formula and sell the drug for the same price, but they are considering whether or not to spend money on an advertising campaign. Each firm can either buy the advertising campaign or not buy it and the following table shows profits for four different scenarios. Futura AD No AD AD (4,4) (12,0) Genera No AD (0,12) (8,8) 1. What is the scenario that maximizes the sum of profits of the two companies? 2. Is there a dominant strategy for each firm? 3. What is the pure strategy Nash Equilibrium? Find 4. Denote the probability of choosing AD for Futura as ƒ and for Genera as g. the best response function for Futura, bƒ (g), and Genera, bg (f).