Multiple Choice
The managers of Alpha and Beta must make repeated advertising decisions simultaneously at the beginning of every month.They choose either low or high levels of advertising expenditure.They both employ a discount rate of 2.5 percent per month. 
Beta expects punishment to last for two months after being caught i.e.,to be penalized in months 2 and 3) .What would be the value-maximizing decision for Beta?
A) Cooperate since $3,000 > PVBenefits of cheating.
B) Cooperate since $6,500/1.025) > PVBenefits of cheating.
C) Cheat since PVBenefits of cheating > $2,820.
D) Cheat since PVBenefits of cheating < $5,641.
Correct Answer:
Verified
Correct Answer:
Verified
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