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Two competing firms are each planning to introduce a new product. Each will decide whether to produce Product A, Product B, o

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Answer #1

C. The Nash equilibria are for firm 1 to introduce product A and firm 2 to introduce product C and firm 1 to introduce product C and firm 2 to introduce product A.

D. both firms to introduce product A.

Product C

Explanation:
Given that firm 1 introduce A, Firm 2's best response is C(90).
Given that firm 1 introduce B, Firm 2's best response is C(85).
Given that firm 1 introduce C, Firm 2's best response is A(30).
Given that firm 2 introduce A, Firm 2's best response is C(90).
Given that firm 2 introduce B, Firm 2's best response is C(85).
Given that firm 2 introduce C, Firm 2's best response is A(30).
So, there are 2 Nash equilibria as best response of both firms occur simultaneously at these two sets. They are (A, C), and (C, A).

Firm 1's minimum payoff from A is -45, from B is -60 and from C is -90. So, firm 1's maximum payoff is -45 from A. Thus, it is the maximin outcome of firm 1.
Firm 2's minimum payoff from A is -45, from B is -60 and from C is -90. So, firm 1's maximum payoff is -45 from A. Thus, it is the maximin outcome of firm 2.

When firm 1 choose its maximin strategy product A, firm 2's best response is C. So, it will introduce product C.

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