In a competitive market scenario, consider two firms, A and B, deciding whether to advertise or not. If both firms choose to advertise, they each earn $30. If neither advertises, they earn $50 each. If one advertises and the other does not, the advertiser earns $20 while the other earns $40. Classify the strategic outcomes based on Nash Equilibrium principles. Which scenario represents a Nash Equilibrium?

In this scenario, we look at the decisions of firms A and B regarding advertising. A Nash Equilibrium occurs when neither firm can improve its earnings by changing its strategy while the other firm's strategy remains the same. If both firms advertise, they earn $30 each, but if neither advertises, they earn more at $50 each, making the latter a better outcome for both. If one firm advertises and the other does not, the advertiser earns $20, which is less than what they would earn if they both chose not to advertise. Therefore, the scenario where neither firm advertises and both earn $50 represents a Nash Equilibrium, as neither firm would want to change their choice given the other firm's decision.