Screen Shot 2022-12-04 at 17

5) The following set of (extensive form) games represent two firms who are attempting to form a cartel. The firms are called "A" and "B". The moves each can make are "Increase output" (1 ) and "don't increase output"(X). The first game (shown below) represents their behavior in a single period where they act simultaneously, unaware of what their opponent is doing. Nash Equilibrium (NE) A: В: A A: 3 A: 1 A: 4 A: 2 B: 3 B: 4 B: 1 B: 2 a. Solve the game by the Rollback (backward induction) method by identifying the dominant strategies (the ones that the players choose), and circle the Nash Equilibrium (for the entire game) and write it above the starting node.

5. In a recent strategy meeting, the Chief Operating Officer (COO) had asked you to report on the best way to respond to your main competitor's production decisions. You modeled the industry as a Cournot duopoly and calculated profit-maximizing production levels for your firm, depending on what we learn about the competitor's output. The market price P depends on the quantity sold by your company (9₁), and the quantity sold by your competitor (92) as follows: P = 125 0.25q₁ - 0.2592. Costs per unit depend on the production level: they are MC₁ =q₁ for us, and similarly MC₂ 92 for our competitor. Impressed with your work on production strategy, the COO looks at your musingly. "You seem to have a good grasp of this. Is it somehow possible to predict the price?" "Actually, yes," you say. "I can use game theory to do that." It doesn't take you long to work out the Nash equilibrium quantites, and an hour later you e-mail your price prediction to the COO. The equilibrium price is: O $25 o…