5. Eve and Ian are the only two producers of Fancy H2O, a New Age product to displace tap

water. They are trying to figure out how much of this product to produce. They know

i.

If they both build a small plant each, they will make the maximum attainable joint economic

profit of 400,000 a day, or 200,000 a day each.

ii. If either firm builds a large plant while the other builds a small plant, the one that builds the

large plant will make an economic profit of 400,000 and the other will incur an economic loss of

60,000.

iii. If both build a large plant each, both will make zero economic profit.

Construct a payoff matrix for the game that Eve and Ian must play. Find the Nash equilibrium of

the game that Eve and Ian play