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Dovator [93]
2 years ago
14

Suppose there are only two producers of aircraft in the world, AirCraft in the United States and AirEurope in the European Union

. The following hypothetical payoff matrices show the profits (in millions of dollars) for each company. In the absence of subsidies, if only one company makes aircraft, it receives a profit of $90 million. If both companies decide to produce, they each lose $3 million. When a company decides not to produce, it earns zero profit.
Air Europe
Produce Not produce
Aircraft Produce -3,-3 65,0
Not Produce 0,65 0,0

Suppose that the European Union considers aircraft a strategic industry gives Air-Europe a $9 million subsidy if it produces.
With a $9 million subsidy, regardless of whether Aircraft produces Or not, AirEurope _______produce if it wants to maximize its profit.

Because AirEurope will enter the market if given a $9 million subsidy, AirCraft should also produce in this industry.

a. True
b. False
Business
1 answer:
Jlenok [28]2 years ago
8 0

Answer:

1. AirEurope should produce if it wants to maximize its profit.

2.  False

Explanation:

New payoffs after subsidy:

Aircraft/ AirEurope               Produce     Not Produce

Produce                                 -3 , <u>6</u>              75 , 0

Not Produce                          0 , 74              0 , 0

With a $9 million subsidy, regardless of whether Aircraft produces or not, AirEurope should<u> produce</u> if it wants to maximize its profit.

The statement is false (Aircraft would earn a negative payoff if it enters).

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