chooses H,the worst payoff would occur if Firm B chooses H:A's payoff would be 50. If Firm A chooses L,the worst payoff would occur if Firm B chooses L:A's payoff would be 15.With a maximin strategy,A therefore chooses H.If Firm BchooesL the worst payoff woul occur if Firm A chooses L:the payoff would be 20.If Firm B chooses H,the worst payoff,40,would occur if Firm A chooses H.With a maximin strategy.B therefore chooses H.So under maximin,both A and B produce a high-quality system. b.Suppose both firms try to maximize profits,but Firm A has a head start in planning,and can commit first.Now what will the outcome be?What will the outcome be if Firm B has a head start in planning and can commit first? If Firm A can commit first,it will choose H,because it knows that Firm B wil rationally choose L,since Lgives a higher payoff to B(45 vs.40).This gives FimAa payoff of 60.If Firm A instead committed toL,B would choose H(55 vs.20).giving A 55 instead of 60.If Firm B can commit first,it will choose H,because it knowsthat Firm A will rationally choose L,since L gives a higher payoff to A(55 vs.50).This gives Fim B a payoff of 55 c.Getting a head start costs money (you have to gear up a large engineering team) Now consider the o-stage game in which first,each firm decides how much money to spend to speed up its planning,and second,it announces which product (H or L)it will produce.Which firm will spend more to speed up its planning? How much will it spend?Should the other firm spend anything to speed up its planning?Explain. Inthis game,there is an apparent advantage to being the first mover.IfA moves first. its profit is 60.If it moves second,its profit is 55,a difference of 5.Thus,it would be willing to spend up to 5 for the option of announcing first.On the other hand,fB moves first,its profit is 55.If it moves second,its profit is 45,a difference of 10,and it thus would be willing to spend up to10 for the option of announcing first Once Firm A realizes that Firm B is willing to spend something on the option of announcing first,then the value of the option decreases for Firm A,because if both firms were to invest both firms would choose to produce the high-quality system,which gives them both a lower payoff.Firm A should not spend money to speed up the introduction of its product in any case.If B goes first and chooses high then Acan choose low and end up with 55 instead of the 50 it would get if it went high also.Thischooses H, the worst payoff would occur if Firm B chooses H: A’s payoff would be 50. If Firm A chooses L, the worst payoff would occur if Firm B chooses L: A’s payoff would be 15. With a maximin strategy, A therefore chooses H. If Firm B chooses L, the worst payoff would occur if Firm A chooses L: the payoff would be 20. If Firm B chooses H, the worst payoff, 40, would occur if Firm A chooses H. With a maximin strategy, B therefore chooses H. So under maximin, both A and B produce a high-quality system. b. Suppose both firms try to maximize profits, but Firm A has a head start in planning, and can commit first. Now what will the outcome be? What will the outcome be if Firm B has a head start in planning and can commit first? If Firm A can commit first, it will choose H, because it knows that Firm B will rationally choose L, since L gives a higher payoff to B (45 vs. 40). This gives Firm A a payoff of 60. If Firm A instead committed to L, B would choose H (55 vs. 20), giving A 55 instead of 60. If Firm B can commit first, it will choose H, because it knows that Firm A will rationally choose L, since L gives a higher payoff to A (55 vs. 50). This gives Firm B a payoff of 55. c. Getting a head start costs money (you have to gear up a large engineering team). Now consider the two-stage game in which first, each firm decides how much money to spend to speed up its planning, and second, it announces which product (H or L) it will produce. Which firm will spend more to speed up its planning? How much will it spend? Should the other firm spend anything to speed up its planning? Explain. In this game, there is an apparent advantage to being the first mover. If A moves first, its profit is 60. If it moves second, its profit is 55, a difference of 5. Thus, it would be willing to spend up to 5 for the option of announcing first. On the other hand, if B moves first, its profit is 55. If it moves second, its profit is 45, a difference of 10, and it thus would be willing to spend up to 10 for the option of announcing first. Once Firm A realizes that Firm B is willing to spend something on the option of announcing first, then the value of the option decreases for Firm A, because if both firms were to invest both firms would choose to produce the high-quality system, which gives them both a lower payoff. Firm A should not spend money to speed up the introduction of its product in any case. If B goes first and chooses high then A can choose low and end up with 55 instead of the 50 it would get if it went high also. This