-Refer to Figure 10.2, which summarizes the payoffs to three aerospace companies that are considering investing $20 billion to develop a new, technologically advanced, commercial jumbo jet airliner for sale in the global marketplace. Payoffs are in billions of dollars. Suppose that the U.S. and European Union governments offer Air America and Europe Air $2 billion in production subsidies. If larger payoffs are preferred, the Nash equilibrium strategy profile for this game is:
I. {Produce, Produce, Produce}.
II. {Don't produce, Produce, Produce}.
III. {Don't produce, Don't produce, Don't produce}.
IV. {Produce, Don't produce, Produce}.
V. {Produce, Produce, Don't produce}.
Which of the following is correct?

Question

Quizplus · Accepted Answer

The Nash equilibrium strategy profile is {Produce, Produce, Don't produce} because with the subsidies, Air America and Europe Air have higher payoffs when they both produce, while the third company does not produce.