3.3 Firm A and Firm B are competitors. Each firm can set a high price, a medium price, or a low price. These prices must be set independently, and Firm A must set its price first. The game tree shows their profits from different prices.

What will be the outcome? Explain your answer.

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Accompanies problem 3.3. High price Firm A Firm B Low price Medium price Firm B Firm B High price Low price High price Low price High price Low price Medium price Medium price Medium price A: $650 A: $200 A: -$400 A: $900 A: $600 A: $100 A: $550 A: $400 A: $200 B: $300 B: $650 B: $400 B: $150 B: $400 B: $100 B: -$200 B: $50 B: $100