Question

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 -3,-3 65,0 Not Produce 0,65 0,0 Suppose that the European Union considers aircraft a strategic industry and gives Air-Europe a $9 million subsidy if it produces. With a $9 million subsidy, regardless of whether Aircraft produces or not, AirEurope will 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

          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         -3,-3                          65,0
Not Produce      0,65                          0,0

Suppose that the European Union considers aircraft a strategic industry and gives Air-Europe a $9 million subsidy if it produces. 
With a $9 million subsidy, regardless of whether Aircraft produces or not, AirEurope will 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

Added by Sandra P.

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