1. Two gas station owners (Kid and Play) have stations that are just across the street from one another.Each morning they must decide on a price without knowing what the other will do, and they are stuck with that price for the whole day.If they both price high, they each make $6,000 that day.If one prices high and the other prices low, the one with the high price makes $1,000 and the one with the low price makes $10,000.If they both price low, they each make $3,000. (Drop the thousands to make the math simpler.)

a. Show the normal-form of the game.

b. If this is a one-shot game (say both stations are going out of business tomorrow), what is the Nash equilibrium of the game?

c. Now assume that they will continue to compete forever.If the interest rate is 20%, can they collude and each charge a high price? What strategy would maintain this collusion?