5. (10 points) Two oligopoly firms are in the process of evaluating their marketing strategies. Firm 1 can
generate estimated profits of $10 mil. from strategy A if the second firm reacts by strategy C and $15 mil. from strategy A if the second firm reacts with strategy D. On the other hand, firm 1 may follow strategy B which could return profits of $8 mil. or $9 mil. if firm 2 reacts with strategy C or D respectively. The second firm’s potential profits are $8 and $12 mil. from strategy C depending on whether firm 1 undertakes strategy A or B and $7 and $8 mil. from strategy D, depending on whether firm 1 follows Strategy A or B.
a. Construct the payoff table for the above industry.
b. Does each firm have a dominant strategy? What is it.
c. Does the industry move toward an equilibrium position? If so, where?