Firm a Is Considering Entering a Market in Which Firm

Multiple Choice

Firm A is considering entering a market in which firm B is a monopolist. Firm B must decide how to respond to this challenge. If firm A decides to enter, firm B can either adopt an aggressive pricing strategy or a passive pricing strategy. If firm B adopts an aggressive pricing strategy, firm A will lose $5 million, although firm B will only earn $1 million. If firm B adopts a passive pricing strategy, firm A will earn $3 million and firm B will earn $7 million. Finally, if firm A decides to stay out of the market, firm B will earn $14 million regardless of its pricing strategy. The Nash equilibrium strategy profile for this game is:

A) {Enter, Aggressive}.
B) {Enter, Passive}.
C) {Stay out, Aggressive}.
D) {Stay out, Passive}.
E) Undecided. This game has multiple Nash equilibria.