Question: Two firms are considering simultaneously developing a new product for a market.The costs of developing the product are $10m but there will only be revenue

Two firms are considering simultaneously developing a new product for a market.The costs of developing the product are $10m but there will only be revenue in the market of $40m if only one of the firms develops the product.If both firms develop the product then earnings/revenues will be competed away.

a) Capture this entry game in a payoff matrix. (5 Marks)

b) What is the Nash equilibrium and why? Please provide explanation. (2 Marks)

c) Does either firm have a dominant strategy? Please provide explanation. (4 Marks)

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