43) Suppose two companies, Macrosoft and Apricot, and considering whether to dev

Question

43) Suppose two companies, Macrosoft and Apricot, and considering whether to develop 43) a new product, a touch-screen t-shirt. The payoffs to each of developing a touch-screen t-shirt depend upon the actions of the other, as shown in the payoft matrix below (the payoffs are given in millions of dollars). Macrosoft Develop -2 for A 2 for M 0 for A develop5 for M Don't develop 5 for A O for M O for A O for M Develop Apricot Don't Suppose Apricot makes its decision first, and then Macrosoft makes its decision after seeing Apricot's choice. What will happen if, before Apricot chooses, Macrosoft announces that it is going to develop a touch-screen t-shirt no matter what Apricot does? A) Apricot will develop a touch-screen t-shirt, and Macrosoft will not because B) Neither Apricot nor Macrosoft will develop a touch-screen t-shirt because they will C) Both Apricot and Macrosoft will develop a touch-screen t-shirt because neither D) Macrosoft will develop a touch-screen t-shirt, and Apricot will not because it's not Macrosoft's threat is not credible. both realize that they are in a no-win situation. company will want to back down. in Apricot's interest to develop a touch-screen t-shirt if Macrosoft also develops one.

Explanation / Answer

Option D is correct

Macrosoft will develop a touch screen t-shirt, and Apricot will not because it's not in Apricot's interest to develop a touch screen t-shirt if Macrosoft also develops one (Payoff = -2 will not be preferred).

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