Suppose two companies, Macrosoft and Apricot, are considering whether to develop a new product, a touch-screen t-shirt. The payoffs to each of developing a touch-screen t-shirt depend upon the actions of the other, as shown in the payoff matrix below (the payoffs are given in millions of dollars).
Suppose Apricot makes its decision first, and then Macrosoft makes its decision after seeing Apricot's choice. What will be the equilibrium outcome of this game?
A)Apricot will develop a touch-screen t-shirt, and Macrosoft will not.
B)Macrosoft will develop a touch-screen t-shirt, and Apricot will not.
C)Both Apricot and Macrosoft will develop a touch-screen t-shirt.
D)Neither Apricot nor Macrosoft will develop a touch-screen t-shirt.

Question

Suppose two companies, Macrosoft and Apricot, are considering whether to develop a new product, a touch-screen t-shirt. The payoffs to each of developing a touch-screen t-shirt depend upon the actions of the other, as shown in the payoff matrix below (the payoffs are given in millions of dollars).  
 Suppose Apricot makes its decision first, and then Macrosoft makes its decision after seeing Apricot's choice. What will be the equilibrium outcome of this game?
A)Apricot will develop a touch-screen t-shirt, and Macrosoft will not. 
B)Macrosoft will develop a touch-screen t-shirt, and Apricot will not. 
C)Both Apricot and Macrosoft will develop a touch-screen t-shirt. 
D)Neither Apricot nor Macrosoft will develop a touch-screen t-shirt.

Quizplus · Accepted Answer

If Apricot doesn't develop a touch-screen t-shirt, then Macrosoft will develop one, and Apricot's payoff will be $0. If Apricot develops a touch-screen t-shirt, then Macrosoft will not develop one, and Apricot's payoff will be $5 million. So, Apricot will choose to develop a touch-screen t-shirt, and Macrosoft will not.

Suppose Two Companies, Macrosoft and Apricot, Are Considering Whether to Develop