Figure 1210 In the figure payoffs are profits in millions of

(Figure 12.10) In the figure, payoffs are profits in millions of dollars. Suppose that Feely cannot develop an antibedbug mattress because of Mealy\'s patented technology. Should Mealy develop and release its antibedbug mattress?
	No, Mealy will earn larger profits by not releasing the mattress. Yes, Mealy will earn $13 million and Feely will earn $3 million. Yes, Mealy will earn $4 million and Feely will earn $9 million. Yes, Mealy will earn $6 million and Feely will earn $4 million.

Solution

Correct option is Yes, Mealy will earn $13 million and Feely will earn $3 million.

As you can see from the figure, when Feely does not develop an antibedbug mattress, Mealy will earn a payoff of $6 million by not developing the mattress and will earn a payoff $13 million if it develops. Since developing matteress will earn a higher payoff, she should do the same.