The table is the payoff matrix for a simple two-firm game. Firms A and B are bidding on a government contract, and each firm's bid is not known by the other firm. Each firm can bid either $10 000 or $5000. The cost of completing the project for each firm is $4000. The low-bid firm will win the contract at its stated price; the high-bid firm will get nothing. If the two bids are equal, the two firms will split the price and costs evenly. The payoffs for each firm under each situation are shown in the matrix.

A bids $10 000

A bids $5000

B bids $10 000

Firms share the contract

A wins the contract

Payoff toA=$3000A=$3000

Payoff toA=$1000A=$1000

Payoff toB=$3000B=$3000

Payoff toB=$0B=$0

B bids $5000

B wins the contract

Firms share the contract

Payoff toA=$0A=$0

Payoff toA=$500A=$500

Payoff toB=$1000B=$1000

Payoff toB=$500B=$500

a.Recall from the text that a Nash equilibrium is an outcome in which each player is maximizing his or her own payoffgiven the actions of the other players. Is there a Nash equilibrium in this game?

b.Is there more than one Nash equilibrium? Explain.

c.If the two firms could cooperate, what outcome would you predict in this game? Explain.