Homework Answers
1) if x=40, Payoff matrix becomes
| FIRM B | |||
| Cooperate | Cheat | ||
| FIRM A | Cooperate | (30,30) | (10,40) |
| Cheat | (40,10) | (20,20) |
If firm A Cooperates firm B would cheat. If firm A would cheat, firm B would also cheat.
If firm B cooperates, firm A would Cheat. And If firm B cheats, firm B would also cheat.
Hence, the Nash equilibrium in the game is:
(Firm A: Cheat, Firm B: Cheat)
Hence, option A is correct.
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