Answered: Consider the following game. Firm 1 can…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Transcribed Image Text:Question 3 Consider the following game. Firm 1 can implement one of two actions, A or B. Firm 2 observes the action chosen by Firm 1 and then decides whether to fight it or not. F2 (-2, 1) Fight A Don't fight Firm 1 (-2, 3) Fight B Don't fight -(4,2) (a) Consider the following strategy profile: Firm 1 chooses A; Firm 2 chooses don't fight if A, and fight if B. • this strategy profile is [Select] strategy profile: Firm 1 chooses A; Firm 2 chooses don't fight if A, and (b) Consider the following don't fight if B. • this strategy profile is [Select] (c) Consider the following strategy profile: Firm 1 chooses B; Firm 2 chooses fight if A and fight if B. • this strategy profile is [Select] F2 -(3, 2)

is ✓ [Select]
in
not a Nash equilibrium
a Nash equilibrium, but not a subgame perfect Nash equilibrium
A,
a subgame perfect Nash equilibrium
none of the above

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