Table 17-3
Two cigarette manufacturers (Firm A and Firm B) are faced with lawsuits from provinces trying to recover the health-care related expenses associated with cigarette smoking. Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illnesses). Provincial prosecutors do not have access to the same data used by cigarette manufacturers and thus will have difficulty recovering full costs without obtaining at least one cigarette firm study. Each firm has been presented with an opportunity to lower their liability in the suit if they cooperate with attorneys representing the provinces.

-Refer to Table 17-3.If both firms follow a dominant strategy,what will Firm A's profits (losses) be

Question

Table 17-3 
Two cigarette manufacturers (Firm A and Firm B) are faced with lawsuits from provinces trying to recover the health-care related expenses associated with cigarette smoking. Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illnesses). Provincial prosecutors do not have access to the same data used by cigarette manufacturers and thus will have difficulty recovering full costs without obtaining at least one cigarette firm study. Each firm has been presented with an opportunity to lower their liability in the suit if they cooperate with attorneys representing the provinces.

-Refer to Table 17-3.If both firms follow a dominant strategy,what will Firm A's profits (losses) be

Quizplus · Accepted Answer

Both firms have a dominant strategy to cooperate with the provinces' attorneys and share their research. By doing so, both firms will only have to pay $30 million each, resulting in total liability of $60 million. If both firms deviate from their dominant strategy, their liability will increase to $40 million each, resulting in a total liability of $80 million. Therefore, Firm A's profits (losses) will be -$30 million.

Table 17-3 Two Cigarette Manufacturers (Firm a and Firm B) Are Faced