Movie time is a theater chain thinking of opening a new theater in a town. It is trying to decide whether to build a large theater or a small one. Estimates indicate that the small theater size would be large enough to handle demand, but Movie time is worried about potential entry. The payoff tree and accounting rates of return are indicated below.
Question: If the opportunity cost of opening a theater in this town (for either firm) is a 10% rate of return, what is the Nash Equilibrium?