You have developed a new computer operating system and are considering whether you should enter the market and compete with Microsoft. Microsoft has the option of offering their operating system for a high price or a low price. Once Microsoft selects a price, you will decide whether you want to enter the market or not enter the market. If Microsoft charges a high price and you enter, Microsoft will earn $30 million and you will earn $10 million. If Microsoft charges a high price and you do not enter, Microsoft will earn $60 million and you will earn $0. If Microsoft charges a low price and you enter, Microsoft will earn $20 million and you will lose $5 million. If Microsoft charges a low price and you do not enter, Microsoft will earn $50 million and you will earn $0. 

a. Use the information provided to make a payoff table for your and Microsoft’s decisions. 

b. If both you and Microsoft are making your decisions simultaneously, what is the Nash equilibrium (or equilibria)? 

c. What if Microsoft selects a price first, and then you decide whether you will enter the market? Draw a game tree for this sequential-move game. Your diagram must be clearly labeled and contain all relevant information. 

d. Use the prune the tree method to illustrate the Nash equilibrium for the sequential move game. What is the Nash equilibrium in this case?