Suppose that Pfizer and Roche are both developing a drug to cure cancer. If neither

pharmaceutical company develops a new drug, then each firm$$s profit would be $$175$ million. If

Pfizer develops a drug and Roche does not develop a drug, then Pfizer makes a profit of $$400$

million, whereas Roche$$s profit is $$100$ million. Similarly, if Roche develops a drug and Pfizer

does not develop a drug, then Roche makes a profit of $$400$ million, whereas Pfizer$$s profit is

$$100$ million. If both Pfizer and Roche develop a drug, then each pharmaceutical company

makes a profit of $$300$ million.

a$.$ Create the payoff matrix for this game. $(1$ point$)$

b$.$ What $($if any$)$ is the dominant strategy for each firm? $(1$ point$)$

Economics $300$: Intermediate Microeconomic

Spring $2020$

c$.$ What is the Nash equilibrium of the game? $(1$ point$)$

d$.$ Is this game a prisoner$$s dilemma? Explain