Two cigarette manufacturers (Firm A and Firm B) are faced withlawsuits from othe

Question

Two cigarette manufacturers (Firm A and Firm B) are faced withlawsuits from other states to recover the health-care relatedexpenses associated with cigarette smoking. Both cigarette firmshave evidence that indicates that cigarette smoking causes lungcancer ( and other related illnesses). State prosecutors do nothave access to the same data used by cigareete manufacturers andthus will have difficulty recovering full costs without the help ofat least one cigarette firm study. Each firm has been presentedwith an opportunity to lower its liability in the suit if itcooperates with attorneys representing the states.    1. Pursuing its own best interests, Firm Awill concede that cigarette smoke causes cancer.       a. only if Firm B concedesthat cigarette smoke causes lung cancer.       b. only if Firm B does notconcede that cigarette smoke causes lung cancer.       c. regardless of whetherFirm B concedes that cigarette smoke causes lung cancer.       d. none of the above. Inpursuing its own best interests, Firm A will in no case concedethat cigarette smoke causes lung cancer.    2. Pursuing its own best interests, Firm Bwill concede that cigarette smoke causes lung cancer.       a. only if Firm A concedesthat cigarette smoke causes lung cancer.       b. only if Firm A does notconcede that cigarette smoke causes lung cancer.       c. regardless of whetherFirm A concedes that cigarette smoke causes lung cancer.       d. None of the above. Inpursuing its own best interests, Firm B will in no case concedethat cigarette smoke causes lung cancer.    3. If both firms follow a dominant strategy,Firm A's profits (losses) will be:       a. -$50       b. -$20       c. -$10       d. -$5    4. If both Firms follow a dominant strategy,Firm B's profit (losses) will be:       a. -$50       b. -$15       c. -$10       d. -$5    5. When this game reaches a Nashequilibrium, profits for firm A and Firm B will be:       a. -$5 and -$50,respectively.       b. -$10 and -$10,respectively.       c. -$20 and -$15,respectively.       d. -$50 and -$5,respectively

Explanation / Answer

1. C regardless of whether firm B concedes that cigarettesmoke causes lung cancer. 2.C regardless of whether firm A concedes that cigarette smokecauses lung cancer. 3.B - $ 20. 4.B - $ 15 5.C. - $ 20 and -$15 respectively.

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