# What is the Nash Equilibrium?

Acura and Volvo offer warranties on the automibiles where wA is the number of years of an Acura war Show more Acura and Volvo offer warranties on the automibiles where wA is the number of years of an Acura warranty and w V is the number of years of a Volvo waranty. The revenue for Firm i i = A for Acura and V for Volvo is TRi=27000wi / wA +wV. The firms cost of providing warranty is TCi = 2000wi. Acura and Volvo both participate in a warranty setting game in which they simultaneosly set warranties. A) What is each firms profit function. B) Suppose Acura and Volvo can set warranties in a year lengths only with a maximum of five years. Fill in the pay-off matrix with Acuras and Volvos profits. C) Determine the Nash Equilibrium warranties. D) Suppose Acura and Volvo collude in setting their warranties what warranties do they set. E) Now suppose that Acuras costs of offering warranties decreases ( this may be due to efficiency and productivity gains in the quality of the manufactured products which lead to increased longevity in the automobiles) to TCa=1000wA. What is the Nash Equilibrium? Explain the effect of this increase in Acuras manufacturing quality on the equilibrium quantities. ***Please show all work and explain in detail I will add more points if all work is shown and explained*** Show less

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