4. (20%) Two firms compete in a market to sell a homogenous produce with inverse demand function P = 400 - 2Q. Each firm produces at a constant marginal cost of $50. Use this to compare the outputand profits in settings characterized by Cournot, Stackelberg, Bertrand, and collusive behavior.

5. (10%) Coca-cola and PepsiCo are the leading competitors in the market for cola products. In 1960Coca-Cola introduced Sprite, which today is the worldwide leader in the lemon-lime soft drinkmarket. Prior to 1999, PepsiCo did not have a product that competed directly against Sprite and hadto decide whether to introduce such a soft drink. By not introducing a lemon-lime soft drink,PepsiCo would continue to earn a $200 million profit, and Coca-Cola would continue to earn a $300 million profit. Suppose that by introducing a new lemon-lime soft drink, one of two possible strategies could be pursued: (1)PepsiCo could trigger a price war with Coca-cola and both would earn profits of 100 million, or (2)Coca- Cola could consent, then Coca-cola and PepsiCo would earn $275 million and $227 million respectively. Please use the extensive form represent the situation. Would introducing the new soft drink be the most profitable strategy?

6. (15%) Use the following normal-form game to answer the following question.

		Player 2
Player 1	Strategy	C	D
	A	30,30	70,0
	B	0,70	60,60

a. Identify the one-shot equilibrium

b. Suppose the players know this game will be repeated three times. Can they achieve payoffs thatare better than the one-shot game Nash Equilibrium? Explain.

c. Suppose the game is infinitely repeated and the interest rate is 6%. Can the player achievepayoffs that are better than the one-shot game equilibrium? Explain.