QUESTION 29 ark Maker (5M) is a manufactunng company that produces toy sharks. An important component of any shark is the jaw. SM is conudering working ath a new ave hanufacturer, Big Jaw Works (8/W) SM has an order from Amazon Toys (a nev, division of Amazn) at a price of $10 per unit. SM produces the shark in house, but purchases he jaw from BJW. SM is fairly confident that BJ's cost of producing jaws is $3 per unit. SM is considering offering, BjM a contract, but they are not sure whether they should ropose to pay BJM $4/unit or $6/unit. They also think that there is a 50% chance that the jaws Bj% delivers will require a costly modification. The cost to make this hodification is $1/unit if B|W makes it, but 8S/unit if B/W refuses to make it and SM will have to make the modification themselves. Note, that only one company negds to nake the modification (so If BJW makes it, then SM will not have to, but if B)W does not make it, then SM will have to) Analyze the game, assuming that the nag companies ill only interact one time. Also, assume that the price that SM offers to BW cannot be contingent on whether or not the costly modifikation will be needed The secuet of events is as follows: 1. SM proposes a price to BJW, and this price can be either $4 or $6. 2 There is a 50% chance thar the costly modification will be needed. 3. It it is needed, BIW decides whether or not to make it (at a cost of $1 per unit) and if B/W does not make the modification, S91 has to make it thereto, ar a cost of 15

In equilibrium, the price SM proposes is _______ If the costly modification is needed, B)W will (make or not make)_________ it in equilibrium the expected per unit profit for B/W is __________ and for SM the expected per unit cost of the jaw is _________ Assuming that it costs SM $1 to assemble the shark, the efficient profit (or *first best* profit) for the supply chain is ________ but in equilibrium the expected profit is