The table below is the payoff matrix for a simple two-firm game. Firms A and B are bidding on a government contract, and each firm's bid is not known by the other firm. Each firm can bid either $10 000 or $5000. The cost of completing the project for each firm is $4000. The low-bid firm will win the contract at its stated price; the high-bid firm will get nothing. If the two bids are equal, the two firms will split the price and costs evenly. The payoffs for each firm under each situation are shown in the matrix.

a. Recall from the text that a Nash equilibrium is an outcome in which each player is maximizing his or her own payoff given the actions of the other players. Is there a Nash equilibrium in this game?
b. Is there more than one Nash equilibrium? Explain.
c. If the two firms could cooperate, what outcome would you predict in this game? Explain.

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A bids $10 000 Firms share the contract Payoff to A $3000 Payoff to A $1000 Payoff to B- $3000 Payoff to B O B wins the contract A bids $5000 A wins the contract B bids S10 000 B bids $5000 Firms share the contract Payoff to A S0 Payoff to A Payoff to B # $ 1000 Payoff to $500 $500