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 from firm A comes to firm B and offers to pay B in exchange for B's certain and enforceable promise to not invest. What is the most that firm A will be willing to pay B to not invest?
A)$30 million
B)$20 million
C)$35 million
D)$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 from firm A comes to firm B and offers to pay B in exchange for B's certain and enforceable promise to not invest. What is the most that firm A will be willing to pay B to not invest?
A)$30 million 
B)$20 million 
C)$35 million 
D)$50 million

Quizplus · Accepted Answer

A expects to earn $20 million in the absence of the deal. A can earn $70 million by convincing B to not invest, so A will be willing to pay no more than $50 million to get B to agree to this deal.

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