Two companies, The Mitchell Scott Paper Company (MSPC) and Cadre, can collaborate on the production of paper. Cadre produces the paper and MSPC packages, sells, and ships the paper to clients. If both firms exert optimal effort, the probability is 0.35 that they will generate revenue of $1000, which they will split equally.

Suppose that effort is observable (in other words, if Cadre exerted optimal effort and revenue is not what is expected, then Cadre knows that this was due MSPC's shirking). Also suppose that a sub-optimal level of effort from one firm reduces the probability of achieving revenue of $1000 to 0.20; whereas, if both firms shirk, the probability is reduced to only 0.05. Assuming that optimal effort costs each $100, whereas shirking costs $0, then the one-shot, simultaneous-move game matrix (where payoffs are the expected monetary values) would be:

Cadre

Shirk

Optimal Effort

MSPC

Shirk

A , B

C , D

Optimal Effort

E , F

G , H

1.Write below the values of A , B: (3 points)

A = _________

B = _________

2.Write below the values of C , D: (3 points)

C = _________

D = _________

3.Write below the values of E , F: (3 points)

E = _________

F = _________

4.Write below the values of G , H: (3 points)

G = _________

H = _________