Little Kona is a small coffee company that is considering entering a market dominated by Big Brew. Each company's profit depends on whether Little Kona enters and whether Big Brew sets a high price or a low price:

Big Brew

High Price Low Price

Little Kona Enter $3 million, $5 million -$1 million, $2 million

Don't Enter $0, $10 million $0, $4 million

True or False: Only Big Brew has a dominant strategy in this game.

True

False

Which of the following outcomes represent a Nash equilibrium in this case? Check all that apply.

Big Brew maintains a high price and Little Kona enters.

Big Brew maintains a low price and Little Kona enters.

Big Brew maintains a low price and Little Kona does not enter.

Big Brew maintains a high price and Little Kona does not enter.

Big Brew threatens Little Kona by saying, "If you enter, we're going to set a low price, so you had better stay out."

True or False: Little Kona should believe the threat.

True

False

If the two firms could collude and agree on how to split the total profits, what outcome would they pick?

Big Brew maintains a low price and Little Kona enters.

Big Brew maintains a high price and Little Kona does not enter.

Big Brew maintains a low price and Little Kona does not enter.

Big Brew maintains a high price and Little Kona enters.