Table 16-8
Two cigarette manufacturers (Firm A and Firm B) are faced with lawsuits from states to recover the healthcare related expenses associated with cigarette smoking. Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illnesses). State prosecutors do not have access to the same data used by cigarette manufacturers and thus will have difficulty recovering full costs without the help of at least one cigarette firm study. Each firm has been presented with an opportunity to lower its liability in the suit if it cooperates with attorneys representing the states.

-Refer to Table 16-8.When this game reaches a Nash equilibrium,profits for Firm A and Firm B will be
A)$-5 and $-50, respectively.
B)$-10 and $-10, respectively.
C)$-20 and $-15, respectively.
D)$-50 and $-5, respectively.

Question

Table 16-8
Two cigarette manufacturers (Firm A and Firm B) are faced with lawsuits from states to recover the healthcare related expenses associated with cigarette smoking. Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illnesses). State prosecutors do not have access to the same data used by cigarette manufacturers and thus will have difficulty recovering full costs without the help of at least one cigarette firm study. Each firm has been presented with an opportunity to lower its liability in the suit if it cooperates with attorneys representing the states.
 
-Refer to Table 16-8.When this game reaches a Nash equilibrium,profits for Firm A and Firm B will be
A)$-5 and $-50, respectively. 
B)$-10 and $-10, respectively. 
C)$-20 and $-15, respectively. 
D)$-50 and $-5, respectively.

Quizplus · Accepted Answer

In a Nash equilibrium, each firm chooses the best strategy given the strategy chosen by the other firm. The payoff matrix in Table 16-8 shows that the equilibrium occurs when both firms choose the strategy that results in profits of $-10 for each.

Table 16-8 Two Cigarette Manufacturers (Firm a and Firm B) Are Faced