Airbus (a European firm) and Boeing (an US firm) are competitors in the market for aircrafts. The demand for aircrafts has gone down significantly in recent times - in fact, so much so that only one player can profitably operate in the market. If both stay in the market, each loses $25 million. If both exit the market each gets 0, where as if one stays and one exits, the one who exits gets 0 while the one who stays bags $150 million. (i) [0.5 marks] Write down the set of pure strategies for each player. (ii) [0.5 marks] Write down the normal form game as a matrix. 2 1 (iii) [1.5 marks] Suppose Airbus chooses stay and Boeing chooses exit? Is that a Nash equilibrium? Is that the only pure strategy Nash equilibrium? Now suppose the European government announces and credibly commits to $26 million subsidy for Airbus, contingent on Airbus not exiting. That is, Airbus will receive $26 million as long as it remains in the market (note: this means $26 million gets added to Airbus's profit/loss figures stated above provided it stays). (iv) [1.5 marks] How does this affect your answers to (ii) and (iii)?