Game Theory Practice Problem:

Intel and AMD are a duopoly that produces CPU chips. Intel and AMD can conduct Research and Development (R&D) or they cannot conduct R&D. The table below shows the payoff matrix for the two firms. The numbers are millions of dollars of profit.

a). Which strategies would result in the best outcome for Intel and AMD combined?

b) In the Nash equilibrium, Intel's strategy is _______________ and earns a profit of $_______________________ and AMD's strategy is _____________ and earns a profit of $______________________________.

c) Why is the result in b) not the best outcome for Intel and AMD?