Step 1. Please calculate the payoff of United with the adding of the $4million to their current payoffs in each cell of the following payoff matrix. That is, write down the value of a, b, c, and d. Each value is worth 0.5 pt. Then write down the Nash equilibrium of this payoff matrix (1 pt).

A profit, U profit

U maintains price at $5

U lowers price to $4

A maintains price at $5

30,______a______

21,______b______

A lowers price to $4

25,______c______

20,______d______

Step 2 (Question b). If United spends the $4 million and proceeds with the improvement, please calculate the new payoff of United in each cell of the following payoff matrix and write down the value of e, f, g, and h. Each value is worth 0.5 pt. Then write down the Nash equilibrium of this payoff matrix (1 pt).

A profit, U profit

U maintains price at $5

U lowers price to $4

A maintains price at $5

30,______e______

21,______f______

A lowers price to $4

25,______g______

20,______h______

Step 3 (Question c). Based on the above calculation, should United proceed with this improvement or add the $4million to their current payoffs? (1 pt) and why (1 pt)