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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).

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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 allI. 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).
Transcribed Image Text: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 allI. 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).
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