Suppose two firms, Allstom from France, and Bombardier from Canada, are bidding on a contract to replace train cars for the subway system in Mexico City. If they bid the same amount, they share the contract, otherwise, the low bid wins. The figure below shows the payoff matrix for this contest. Bombardier (B) B bids $60 million B bids $40 million A bids $60 million Profit to A: $12 m Profit to B: $12 m Profit to A: $0 m Profit to B: $6 m Allstom (A) ... A bids $40 million Profit to A: $6 m Profit to B: $0 m Profit to A: $3 m Profit to B: $3 m O A. each firm bids $40 million, and earns profit of $3 million. O B. each firm bids $60 million, and earns profit of $12 million. O C. Bombardier bids $40 million, and earns profit of $6 million, while Allstom bids $60 million and earns profit of $0. O D. Bombardier bids $60 million, and earns profit of $0, while Allstom bids $40 million and earns profit of $6 million.

Does each individual in a prisoners dilemma benefit more from cooperation or from pursuing self-interest? Explain briefly.

Jane and Bill are apprehended for a bank robbery. They are taken into separate rooms and questioned by the police about their involvement in the crime. The police tell them each that if they confess and turn the other person in, they will receive a fighter sentence. If they both confess, they will be each be sentenced to 30 years. If neither confesses, they will each receive a 20-year sentence. If only one confesses, the they will receive 15 years and the one who stayed silent will receive 35 years. Table 10.7 below represents the choices available to Jane and Bill. If Jane trusts Bill to stay silent, what should she do? If Jane thinks that Bill will confess, what should she do? Does Jane have a dominant strategy? Does Bill have a dominant strategy? A = Confess; B = Stay Silent. (Each results entry lists Janes sentence first (in years), and Bills sentence second.)