(Scenario: Payoff Matrix for Airbus and Boeing) This payoff matrix describes actions in developing so-called superjumbo jets that can carry 600 or more passengers. In each element, the lower-left value gives the outcome for Boeing based on the action of Airbus and the upper-right value gives the outcome for Airbus based on the action of Boeing. For example, in element A, each company will lose $10 million if they both decide to produce superjumbo jets. Which element in the payoff matrix describes the best choices of Airbus and Boeing when Boeing receives a $50 million subsidy?
A) A
B) B
C) C
D) D

Question

(Scenario: Payoff Matrix for Airbus and Boeing) This payoff matrix describes actions in developing so-called superjumbo jets that can carry 600 or more passengers. In each element, the lower-left value gives the outcome for Boeing based on the action of Airbus and the upper-right value gives the outcome for Airbus based on the action of Boeing. For example, in element A, each company will lose $10 million if they both decide to produce superjumbo jets.  Which element in the payoff matrix describes the best choices of Airbus and Boeing when Boeing receives a $50 million subsidy?
A) A 
B) B 
C) C 
D) D

Quizplus · Accepted Answer

When Boeing receives a $50 million subsidy, its payoff for producing superjumbo jets becomes $30 million instead of $20 million as shown in element B. Therefore, if Airbus chooses to not produce superjumbo jets, it would receive a payoff of $5 million (lower left value), while Boeing would receive a payoff of $30 million (upper right value), resulting in the highest payoff for both companies. Hence, the best choices for Airbus and Boeing are for Airbus to not produce superjumbo jets and for Boeing to produce superjumbo jets with the subsidy.

(Scenario: Payoff Matrix for Airbus and Boeing) This Payoff Matrix