Game Theory

This is a typical scenario of a Prisoner's Dilemma game in economics, where firms are deciding between cooperation and competition. The dominant strategy for both firms is to compete because each firm can earn a higher profit by competing (INR 10 crores) when the other firm cooperates (earning zero if cooperating while the other competes).

The Nash equilibrium occurs when both firms choose to compete, resulting in each firm earning INR 2 crores. While each firm could benefit by cooperating, they each have an incentive to deviate from cooperation to maximize their individual profits.

Thus, the correct answer is (b) compete and compete.