Firm a -Firms a and B Can Conduct Research and Development (R&D)

Multiple Choice

Firm A

-Firms A and B can conduct research and development (R&D) or not conduct it. R&D is costly but can increase the quality of the product and increase sales. The payoff matrix is the economic profits of the two firms and is given above, where the numbers are millions of dollars. The Nash equilibrium occurs when

A) neither A nor B conduct R&D.
B) both A and B conduct R&D.
C) only A conducts R&D.
D) only B conducts R&D.