You Are the Manager of Copies Are Us

Essay

You are the manager of Copies Are Us.The only other copy store in town, the Carbon Copy, recently got bids on adding a color copier.You must decide whether to obtain a color copier, but you can base decision on what your rival does.If your rival adds a color copier and you don't, you expect your profits to fall by $1,000 per week and its profits to rise by $1,500 per week.Conversely, if you add the color copier and your rival does not, your profits will increase by $1,500 per week and your rival's profits will fall by $1,000 per week.However, if you both do the same thing (add color copies or not), you each expect profits to stay at their current level.Show the extensive form of this game, and find the Nash equilibrium (or equilibria).Is there a subgame perfect equilibrium?