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Firm1 has an online sales website and it is considering offering to sell the products of a healthcare product
manufacturer on its website. The production capacity of this manufacturer (Firm2) is important to adequately meet
online customer demands. Firm2 will accept or reject this offer, taking into account its own production capacity.
Firm1 estimates the probability of Firm2's production capacity to be low and high as 1/3 and 2/3 respectively. The
tables created by Firml‘s marketing and finance departments under these conditions are as follows. The outcomes are given in the following payoff table (a) under conditions of low level capacity of Firm2 : la)
Firm 1
Offer to sell Don’t offer to sell
Firm2 Accept 3,4 0,4
Reject 0,2 0. O The outcomes are given in the following payoff table (bl under conditions of high level capacity of Firm2 : lb} Firm 1
Offer to sell Don’t offer to sell
Fi rm2 Accept 5,4 2,-1
Reject 2,3 4, O Firm1 is not certain about the capacity level of Firm2. 1. Please answer the following questions according to the problem above (40 p.) a. Describe the type of the game in detail. b. Is it static or dynamic game?
c. Computing the expected values of both firms for each occasion, explain the strategy sets of them. d. Explain the result of the game.
Subject: Business

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