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3. Game theory: (from Pindyck and Rubinfeld, 2005) Boeing and Airbus are each deciding whether to produce a new aircraft. Because of the huge cost
3. Game theory: (from Pindyck and Rubinfeld, 2005) Boeing and Airbus are each deciding whether to produce a new aircraft. Because of the huge cost of developing the aircraft, a single producer would need to have the entire world market to itself to earn a profit, say, of $100 million. If both firms produce the aircraft, however, then each loses $10 million. Finally, the payoff for a firm that does not produce is $0. A. Write a two-by-two payoff matrix for the "game" between these two firms, with their choices being to produce or not produce and with payoffs according to the information above. Does either firm have a dominant strategy? If so, indicate who and indicate what the dominant strategy is. B. Two equilibria of this game are: 1) Airbus produces and Boeing does not; and 2) Boeing produces and Airbus does not. Explain why these are Nash Equiliria. For each of them, what is the total profit realized in the whole industry
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