Problem 5 Two countries are currently facing the COVID threat when trading with each other. Such countries are currently considering three options: keeping the activities open, limiting the opening hours, or closing down. The following table shows the expected payoffs in billions of dollars. For example, if Country 1 will adopt “Limited opening" and Country 2 will keep the activities open, Country 1 will have a payoff of 4 billion dollars, while Country 2 will have a payoff of 8 billion dollars. Country 2 Оpen Limited opening Closed Оpen 5;5 8;4 10;0 Country 1 Limited opening 4;8 7;7 5;0 Closed 0;10 0;5 0;0 Question 5.1. In case of a simultaneous decision (simultaneous game), identify eventual equilibria, and strategies in this game for the two countries. Give a brief economic explanation of your results. Question 5.2. In case one of the two countries would choose first (sequential game), identify the two outcomes of the game, and eventual first/second mover advantages.

Problem 5 Two countries are currently facing the COVID threat when trading with each other. Such countries are currently considering three options: keeping the activities open, limiting the opening hours, or closing down. The following table shows the expected payoffs in billions of dollars. For example, if Country 1 will adopt “Limited opening" and Country 2 will keep the activities open, Country 1 will have a payoff of 4 billion dollars, while Country 2 will have a payoff of 8 billion dollars. Country 2 Оpen Limited opening Closed Оpen 5;5 8;4 10;0 Country 1 Limited opening 4;8 7;7 5;0 Closed 0;10 0;5 0;0 Question 5.1. In case of a simultaneous decision (simultaneous game), identify eventual equilibria, and strategies in this game for the two countries. Give a brief economic explanation of your results. Question 5.2. In case one of the two countries would choose first (sequential game), identify the two outcomes of the game, and eventual first/second mover advantages.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter8: Game Theory

Section: Chapter Questions

Problem 8.9P

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