Suppose Toyota and Honda must decide whether to make a new breed of side-impact airbags standard equipment on all models. Side-impact airbags raise the price of each automobile by $1,000. If both firms make side-impact airbags standard equipment, each company will earn profits of $2 billion. If neither company adopts the side-impact airbag technology, each company will earn $3.5 billion. If one company adopts the technology as standard equipment and the other does not, the adopting company will earn a profit of $4.5 billion and the other company will earn $0.5 billion. If you were a decision-maker at Honda, would you make side-impact airbags standard equipment? Explain.
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