Question
there are two existing firms in the market for computer chips. firm A knows how to reduce the production cost for the chip and is
there are two existing firms in the market for computer chips. firm A knows how to reduce the production cost 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 C/2. If A innovates and B does not, A earns $30 in revenue while B earns $0. If A innovates and B does likewise, both firms earn 15$ in revenue. If neither firm innovates, both earn 10$. If C = 15, which is the subgame perfect Nash equilibrium of the game? Clearly draw the extensive form game
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