Let the demand curve for water-bottles be P = 22- (Qa + Qb). Two firms A and B are present in the market to supply these bottles. Both firms face the same marginal cost of $10 and fixed cost of $15. Output is in millions of bottles. Suppose that CEOs of both firms talk to each other at a party and agree to reduce their output by 1 million each so that price can rise by $2 and profits become triple. The decision to reduce output is called Cooperation and decision to maintain Cournot output is called Defection.

a) Write the payoff matrix for the game between the two firms with two strategies to Cooperate or Defect.

b) What is the Nash equilibrium if it is a one-shot game?

c) What is the Nash equilibrium if the game is repeated twice since these shirts will go out of fashion in two years (assume zero discount rate)?