Exhibit 15-2 Two cigarette manufacturers (Firm A and Firm B)are faced with lawsuits from states 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).State prosecutors do not have access to the same data used by the cigarette manufacturers,and thus will have difficulty recovering full costs without the help of at least one tobacco firm's evidence.Each firm has been presented with an opportunity to lower their liability in the suit if they cooperate with attorneys representing the states.
Refer to Exhibit 15-2.If both firms follow a dominant strategy,Firm A's profits (losses)will be:

Question

Exhibit 15-2 Two cigarette manufacturers (Firm A and Firm B)are faced with lawsuits from states 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).State prosecutors do not have access to the same data used by the cigarette manufacturers,and thus will have difficulty recovering full costs without the help of at least one tobacco firm's evidence.Each firm has been presented with an opportunity to lower their liability in the suit if they cooperate with attorneys representing the states.
 Refer to Exhibit 15-2.If both firms follow a dominant strategy,Firm A's profits (losses)will be:

Quizplus · Accepted Answer

Both firms have a dominant strategy to cooperate with the state prosecutors to reduce their liability. This will result in both firms sharing the costs of the lawsuit. The cost sharing is not mentioned in the exhibit, but it can be assumed. Therefore, Firm A's losses will be reduced to -$20 billion.

Exhibit 15-2 Two Cigarette Manufacturers (Firm a and Firm B)are