There are two existing firms in the market for computer chips. Firm A knows how to reduce the production costs for the chip and is considering whether to adopt the innovation or not. Innovation incurs a fixed setup cost of $C, while increasing the revenue. However, once the new technology is adopted, another firm, B, can adopt it with a smaller setup cost of 0.7C. If A innovates and B does not, A earns $80 intotal revenuewhile B earns $0. If A innovates and B does likewise, each firm earns $40 intotal revenue. If neither firm innovates, each firm earns $16.If C = $60, what would be the outcome of this competition?

• A.A innovates, B does not.
• B.A innovates, B innovates.
• C.Neither firm innovates.
• D.None of the preceding answers is correct.