1.State whether you agree or disagree with the following statements. For each statement explain your answer in two or three sentences

a)The reason that players cannot sustain the good outcome in prisoner's dilemma game is that they are in separate cells and cannot communicate

b)The authorities should always audit tax returns of offenders if they want to raise revenues from fines

2.The market demand for firm 1 and firm 2 competing in quantities is given by P=A-Q where Q=q1+q2. Firm 1 chooses q1 first and after having observed q1, firm 2 chooses q2. Costs of the firms is given as c(q1)=0 and c(q2)=q2^2. Find the subgame perfect equilibrium quantities for the two firms

3.We assume that a group of two members need to submit an assignment. They can take two possible actions in group work, high effort EH=40, or low effort EL=10. High effort is costly, but high effort increases the quality of homework. If both make low efforts, then they receive a garde 60. If one of them makes high efforts, while the other makes low effort, then they receive a grade 80. We ssume a player's payoff is given by the difference between his grade and the level of the effort he exerts.

a.Show the normal form of the game

b.What is the dominant strategy for the players

c.What is the Nash equlibrium