You are the manager of GearNet and must decide how many internet hubs to produce to maximize your firms profit. GearNet and its only rival, NetWorks, sell dual-speed internet hubs that are identical from consumers perspective. The market price for hubs depends on the total quantity produced by the two firms. A survey reveals that the market price of hubs depends on total market output as follows:

Total Quantity produced Price per unit

500 units $120

750 units $100

1000 units $90

Both firms have a similar structure of production and use labor, materials and machines to produce output. They hire labor and purchase materials on an as-needed basis. The machines they use were purchased three years ago, when they started the business. The accounting department of GearNet provides the following data for unit production costs, which are similar for NetWorks also:

Item 250 units 500 units

Labor $40 $40

Materials $30 $30

deprec. charge $80 $40

Technological constraints require each firm to produce either 250 hubs or 500 hubs. Identify the costs that are relevant for your decision, show the payoffs of the game in a normal form game, and then determine whether GearNet should produce 250 hubs or 500 hubs. Assuming that firms cannot cut down costs any further, is there any other way you can increase the profit of the firm?