368 PART V FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSIN 4. Consider trade relations between the United States and Mexico. Assume that the leaders of the two coun- tries believe the payoffs to alternative trade policies are as follows: United States' Decision High Tariffs Low Tariffs U.S. gains U.S. gains $25 billion $30 billion Low Tariffs Mexico gains Mexico gains $10 billion Mexico's $25 billion Decision U.S. gains U.S. gains $10 billion $20 billion High Tariffs Mexico gains Mexico gains $30 billion $20 billion a. What is the dominant strategy for the United States? For Mexico? Explain. b. Define Nash equilibrium. What is the Nash equilib rium for trade policy? c. In 1993, the U.S. Congress ratified the North American Free Trade Agreement, in which the United States and Mexico agreed to reduce trade barriers simultaneously. Do the perceived payoffs shown here justify this approach to trade policy? Explain. d. Based on your understanding of the gains from trade (discussed in Chapters 3 and 9), do you think that these payoffs actually reflect a nation's welfare under the four possible outcomes