The payoff matrix below shows the payoffs (in millions of dollars)for two firms, A and B, for two different strategies, investing in new capital or not investing in new capital.
An industry spy comes to firm B and offers to pay B in exchange for B's certain and enforceable promise to not invest. How much must the spy pay B?
A)$0
B)At least $15 million
C)At least $35 million
D)At least $50 million

Question

The payoff matrix below shows the payoffs (in millions of dollars)for two firms, A and B, for two different strategies, investing in new capital or not investing in new capital.  
 An industry spy comes to firm B and offers to pay B in exchange for B's certain and enforceable promise to not invest. How much must the spy pay B?
A)$0 
B)At least $15 million 
C)At least $35 million 
D)At least $50 million

Quizplus · Accepted Answer

B expects to earn $20 million by investing because B assumes that A will play A's dominant strategy. B earns $5 million by not investing, so will require at least $15 million to agree to this deal.

The Payoff Matrix Below Shows the Payoffs (In Millions of Dollars)for