Question: Firm A A honors agreement A cheats Firm B B honors agreement ( B ) earns ( $ 8 M ) A earns ( $ 8 M B ) earns ( $ 2 M A ) earns ( $ 10 M ) ( B ) cheats ( B ) earns $10M A earns ( $ 2 M B ) earns ( $ 4 M A ) earns ( $ 4 M ) Given the concept of Nash Equilibrium, which of the following is the outcome in equilibrium? a. Both firmsSee the answerSee the answerSee the answer done loadingShow transcribed image textBoth companies would be better off in the Nash equilibrium by cheating than they would be if they both followed the agreement. Cheating is more profitable for both companies. This is due to the fact that if both companies cheat, they will co…View the full answerTranscribed image text: Firm A A honors agreement A cheats Firm B B honors agreement B earns $8M A earns $8MB earns $2MA earns $10M B cheats B earns $10M A earns $2MB earns $4MA earns $4M Given the concept of Nash Equilibrium, which of the following is the outcome in equilibrium? a. Both firms honor the agreement b. A cheats while B honors agreement c. B cheats while A honors the agreement d. Both firms cheat Clear my choice
