1. Firms J and K produce compact-disc players and compete against one another.Each firm can develop either an economy player (E) or a deluxe player (D).According to the best available market research, the firms resulting profits are given by the following payoff table:

Firm K

E

D

Firm J

E

30,55

50,60

D

40,75

25,50

a)The firms make their decisions independently and each is profit maximizing.What is the Nash equilibrium(s)?

b)If this game is played simultaneously, what would be the outcome?

c)Suppose that firm J has a lead in development and so can move first.What action should J take and what should be K's response?

d)What will the outcome be if K can move first?