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Refer to Scenario 5. Suppose the two airlines compete with each other many times, and thus, they play this game many times. The Star Airline tells Big Airline that it will charge a high price so long as the Big Airline charges a high price, but it will charge a low price forever if it detects the Big Airline charging a low price for just one round. Which of the following is correct for the Big Airline payoffs in two consecutive rounds, assuming the Big Airline wants to maximize its total profits by competing with the Star Airline in two rounds?

$20 million for each of the two rounds

0%

$50 million in the first round, and $20 million in the second round

0%

$40 million for each of the two rounds

0%

$50 million in the first round, and $0 million in the second round

0%

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Refer to Scenario 5. What profit does each airline make in the Nash equilibrium when they compete once?

The profit made by the Star Airline is $50 million and the one made by the Big Airline is $0.

0%

Each airline makes $20 million.

100%

The profit made by the Star Airline is $0 and the one made by the Big Airline is $50 million.

0%

Each airline makes $40 million.

0%

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