In early 2000s, both Boeing and airbus planned to build a super-sized commercial aircraft which accommodates more than 500 passengers. Due to enormous costs of developing a new type of aircraft, the company should sell at at least 150 aircrafts to break even. However, it was reported that the global market demand for super-sized aircrafts was about 200 aircrafts. The payoffs (in billion dollars) from developing this type of aircraft are shown in the following payoff matrix:

Q2 (5 marks). In early 2000s, both Boeing and Airbus planned to build a super-sized commercial aircraft which accommodates more than 500 passengers. Due to enormous costs of developing a new type of aircraft, the company should sell at least 150 aircrafts to break even. However, it was reported that the global market demand for super-sized aircrafts was about 200 aircrafts. The payoffs (in billion dollars) from developing this type of aircraft are shown in the following payoff matrix: Airbus Develop Do not develop Develop -20, -20 100.0 Boeing Do not develop 0, 100 0. 0 a (1 marks) What is(are) the pure strategy Nash equilibrium(s), if both firms make a decision simultaneously? b (2 marks) Suppose the EU government provides a lump-sum subsidy of $50 billion to Airbus if it develops the aircraft. Draw a new payoff matrix under this subsidy and find the pure strategy Nash equilibrium(s). c (2 marks) Suppose Airbus does not receive a subsidy, but has a head start over Boeing, as a market leader. Draw an extensive form game tree of the new sequential game and find the subgame perfect Nash equilibrium