5. Suppose two firms are in competition with each other. They can either try to have a high level of competition or a low level of competition, with each firm deciding independently whether to compete with a high or low level of intensity. If both firms choose a low level (low amount of advertising, lower amount of production), both firms would receive $10 million in profits. If one firm chose a high level of competition and the other chose a low level, the firm who chose a high level of competition would receive $12 million, while the other firm who chose the low level of competition would receive $6 million. If both firms chose a high level of competition, each firm would have a profit of $8 million.

   1. For this situation, construct a payoff matrix

   2. Determine the Nash Equilibrium (or equilibria, if multiple occur)

   3. Does either firm have a dominant strategy? Why or why not?

Answer rating: 100% (QA)

Let there be two firms A and B Payoff Matrix A Low Level A High Level B Low Level 10 10 12 6 Conside... View the full answer