3. Suppose there are two movie rental stores in town: Captain Video and Movie Mania. These movie rental firms face a choice between two advertising strategies: television (T) and radio (R). Captain Video will be the first firm to make a decision, and their decision will be based on the anticipated action of Movie Mania. A game tree is provided below: Captain Video T R Movie Mania Movie Mania RT T R $800, $600 $600, $750 $400, $400 $250, $450 Find the Nash equilibrium using the backward induction method. Please explain the decision making process of each firm. (3 pts)

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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3. Suppose there are two movie rental stores in town: Captain Video and Movie Mania.
These movie rental firms face a choice between two advertising strategies: television (T)
and radio (R). Captain Video will be the first firm to make a decision, and their decision
will be based on the anticipated action of Movie Mania. A game tree is provided below:
Captain Video
T
R
Movie Mania
Movie Mania
RT
T
R
$800, $600
$600, $750 $400, $400 $250, $450
Find the Nash equilibrium using the backward induction method. Please explain the decision
making process of each firm. (3 pts)
Transcribed Image Text:3. Suppose there are two movie rental stores in town: Captain Video and Movie Mania. These movie rental firms face a choice between two advertising strategies: television (T) and radio (R). Captain Video will be the first firm to make a decision, and their decision will be based on the anticipated action of Movie Mania. A game tree is provided below: Captain Video T R Movie Mania Movie Mania RT T R $800, $600 $600, $750 $400, $400 $250, $450 Find the Nash equilibrium using the backward induction method. Please explain the decision making process of each firm. (3 pts)
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