Two cigarette manufacturers (Firm A and Firm B) are faced with lawsuits from states to recover the health care related expenses associated with cigarette smoking. Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illnesses). State prosecutors do not have access to the same data used by the cigarette manufacturers and thus will have difficulty recovering full costs without the help of at least one cigarette firm study. Each firm has been presented with an opportunity to lower their liability in the suit if they cooperate with attorneys representing the states. FIRM A Concede that cigarette smoke causes lung cancer Argue that there is no evidence that smoke causes cancer FIRM BConcede that cigarette smoke causes lung cancer Firm A profits $-20 billion Firm B profits $-20 billion Firm A profits $-50 billion Firm B profits $-10 billion Argue that there is no evidence that smoke causes cancerFirm A profits $-10 billion Firm B profits $-50 billionFirm A profits $-15 billion Firm B profits $-15 billion When this game reaches a Nash equilibrium, profits for firm A and firm B will respectively be

Nash equilibrium is a situation in which both players will receive optimal profit. One player can not receive higher and extra ordinary profit while other player will make excessive losses. Nash equilibrium is a strategy in payoff matrix which benefits both the firms.

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