What is the amount of profit Tumbleweed makes when both advertise? $ How much profit does Native Roots make when both advertise? $ Part 2 (1 point)See Hint What outcome is predicted (that is, the Nash equilibrium) for these two firms, given the figures above? Choose one: A. Both firms advertise. B. Tumbleweed advertises, but Native R

Complete Question:

There are two plant nurseries in a small town. They are called Tumbleweed and Native Roots. If neither advertises, Tumbleweed makes $80,000 a month in profits and Native Roots makes $95,000. Advertising would cost each firm $20,000 a month. If only one firm advertises, that firm increases sales by $50,000 a month whereas the non-advertising firm loses out. If Tumbleweed doesn't advertise but Native Roots does, Tumbleweed loses $30.000 a month. If Native Roots doesn't advertise but Tumbleweed does, it loses $35,000 a month. If both advertise, they increase revenue by $15,000 each. Insofar as they grow their products from the ground, they don't have any increased costs when they have increased sales (that is, their marginal cost of production is $0). 7th attempt Part 1 (2 points) See Hint What is the amount of profit Tumbleweed makes when both advertise? $ How much profit does Native Roots make when both advertise? $ See Hint Part 2 (1 point) What outcome is predicted (that is, the Nash equilibrium) for these two firms, given the figures above? Choose one: • A. Both firms advertise. B. Tumbleweed advertises, but Native Roots doesn't. C. Native Roots advertises, but Tumbleweed doesn't. D. Neither firm advertises.

Tumbleweed and Native Roots

Part 1:

a. The amount of profit that Tumbleweed makes when both advertise is:

= $95,000 ($80,000 + $15,000)

b. The amount of profit that Native Roots makes when both advertise is:

= $110,000 ($95,000 + $15,000)

Part 2:

The predicted outcome (that is, the Nash equilibrium) for these two firms, given the figures above is:

A. Both firms advertise.

Explanation:

a) Data and Calculations:

                                                           Tumbleweed  Native Roots

Profits without advertisement              $80,000         $95,000

Advertising cost per month                    20,000           20,000

Loss without advertisement                  -30,000          -35,000

Gain with advertisement                        50,000           50,000

Gain if both firms advertise                    15,000            15,000

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