2) (20 points) Consider the following sequential game. There are two existing firms in the market for computer chips, firm A and firm B. Firm A can adopt a new technology that reduces the production costs for the chip and is considering whether to adopt the innovation or not. Adopting the innovation costs $C (think of this as a 'set-up' cost), but it increases the profits that the firm obtains from the chips (which are produced at a lower cost with the innovation). However, once the new technology is adopted by firm A, then firm B can adopt it with a smaller set-up cost of $C/2. If firm A does not innovate, then the game ends and each firms earns $5. If firm A decides to adopt the innovation and firm B decides not to adopt it, A earns $20 (minus the cost for firm A of adopting the innovation) while B earns $0. If firm A adopts the innovation and firm B adopts it as well, each firm earns $15 (minus the cost for firm B of adopting the innovation). (i) For what values of SC will firm B adopt the innovation if firm A adopts it? Explain. (ii) For what values of SC will firm A adopt the innovation? What is your prediction in this case? Explain. (iii) What is your prediction if $C = $14? Explain