There are two coffee companies (company A and company B) in the market. A research institute approached each of these companies with the request of funding a new project on health benefits of coffee. It looks like this research will confirm the benefits of coffee and therefore, give boost to coffee consumption. However, the project is costly. If only one firm funds the project, then it will get $1 million of profit while another firm will get $10 million (the firm- sponsor will have to endure the cost of the research while another firm will benefit from the increased demand). If each firm funds the project, each firm makes $5 million profit. If neither, each receives no profit at all. a. Copy and fill in the payoff matrix below. Company B Fund Don't Fund Company | Fund A Don't Fund b. Is there a dominant strategy for each firm? Explain. c. Find the Nash equilibrium outcome of this game (if any exists).

There are two coffee companies (company A and company B) in the market. A research institute approached each of these companies with the request of funding a new project on health benefits of coffee. It looks like this research will confirm the benefits of coffee and therefore, give boost to coffee consumption. However, the project is costly. If only one firm funds the project, then it will get $1 million of profit while another firm will get $10 million (the firm- sponsor will have to endure the cost of the research while another firm will benefit from the increased demand). If each firm funds the project, each firm makes $5 million profit. If neither, each receives no profit at all. a. Copy and fill in the payoff matrix below. Company B Fund Don't Fund Company | Fund A Don't Fund b. Is there a dominant strategy for each firm? Explain. c. Find the Nash equilibrium outcome of this game (if any exists).

Principles of Microeconomics (MindTap Course List)

8th Edition

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: Oligopoly

Section: Chapter Questions

Problem 9PA

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