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GM produces cars and Cummings produces car engines. Suppose Cummings sells most of its engines to GM and a few to a limited outside market.

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GM produces cars and Cummings produces car engines. Suppose Cummings sells most of its engines to GM and a few to a limited outside market. Nonetheless, assume Cummings depends heavily on GM and makes its production decisions in response to GM's production plans. Thus, GM is the leader and decides what kind of cars to build and Cummings then decides what kind of engines to produce. The payoff matrix to the right shows the possible outcomes to this game. What will be the Nash equilibrium? If GM selects the kind of car to build rst, then C) A. GM will choose large cars and Cummings will choose large engines. 0 B. GM will choose large cars and Cummings will choose small engines. 0 0. GM will choose small cars and Cummings will choose large engines. 0 D. GM will choose small cars and Cummings will choose small engines. 0 E. none of the above. Cummings Small engines Large engines GM Large engines Cummings would prefer GM to build big cars, in which case Cummings would produce big engines. What could Cummings do to achieve this outcome? Cummings could O A. use a tit-for-tat strategy. O B. destroy its small engine production capacity. O C. threaten to build large engines. O D. develop a reputation for acting rationally. O E. follow its dominant strategy

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