Suppose that the market for microprocessors is dominated by just two firms. All microprocessors produced are sold at the market-clearing price which depends on TOTAL industry output. The market demand was estimated to be P = 30 - Q_{TOTAL ,}where Q_TOTALis the combined output of two firms in million.

The only decision variable for each firm is how many microprocessors to produce. Each firm must decide whether to build a plant suited to produce high volume, low volume, or to produce no microprocessors at all. Once the output decision is made, it is final. Regardless of the volume of production, each microprocessor costs a firm $7 to produce.

High and low volumes are 10 million and 5 million microprocessors, respectively.

a.(6 pts) Suppose the game is played simultaneously. Present the game in the normal form, using the table below and expressing payoffs in TOTAL PROFIT amounts.

(Consider, for example, the case when Firm 1 produces 5 mln units and firm 2 produces 10 mln units. The total industry output is 15 million. According to the demand equation, the market price will be P = 30 - 15 = $15.

The profit margin is then (P-ATC) = 15 - 7 = $8 per microprocessor. Finally, the profits of the two firms are 85=$40mln and 810=$80mln, respectively... and so on.)

Firm 2 Volume=10min Volume=5min Volume=0min Volume=10min Firm 1 Volume=5min 40. 80 Volume=0min