Suppose Two Firms Are Trying to Decide How Much to Budget

question 84

Multiple Choice

Suppose two firms are trying to decide how much to budget for research and development. Once a new discovery is made, each firm benefits regardless of which firm developed the innovation. In this R&D game of chicken, the Nash equilibrium will be that

• A) either both firms conduct the R&D or neither firm conducts the R&D.
• B) only one firm conducts the R&D but which firm conducts the R&D cannot be determined.
• C) both firms conduct the R&D.
• D) neither firm conducts the R&D.

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