Suppose Boeing and Airbus Are Both Considering Expanding Their Plant

question 24

Multiple Choice

Suppose Boeing and Airbus are both considering expanding their plant capacity as a strategic move but can't observe their opponent's move until their own move has been determined.The following are time-discounted values of all future profit streams in billions of dollars.Which of the following strategies are Nash equilibria?

• A)(Expand, Don't)
• B)(Don't, Don't)
• C)(Expand, Expand)
• D)(Don't, Expand)
• E)(b)and (c)
• F)None are Nash equilibria.

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Definitions:

Moral Hazard

A situation where one party engages in risky behavior knowing that they are protected against the consequences, often because another party bears the cost.

Irresponsible Borrowings

Financial behavior that involves taking on debt in ways that are unsustainable or without a plan to manage repayment, leading to potential financial harm.

Shirking

The behavior of employees who avoid doing their work or put in less effort than is expected, which can negatively impact productivity.

Incentive Contracts

Agreements that provide additional benefits or compensation to parties who meet or exceed specific performance goals or targets.