Question 3 (Chapter 13) Two firms at the St. Louis airport have franchises to carry passengers to and from hotels in downtown St. Louis. These two firms, Metro Limo and United Limo, operate nine passenger vans. These duopolists cannot compete with price, but they can compete through advertising. Their payoff matrix is below: United Limo Increase Don't Increase Advertising Advertising Metro Limo Increase Advertising Don't Increase 25, 15 30, 0 Advertising 15, 20 40, 5 3.1 Does each firm have a dominant strategy? If so, explain what that strategy is. 3.2 What is the Nash equilibrium? Explain where the Nash equilibrium occurs in the payoff matrix.

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