5. (10pts) A hugely important innovation for trade was the standardized shipping container. It massively reduced transport costs and is believed to have also been a key component of driving the globalization of production processes (Who would have thought a box was such a special invention?). The important thing about the shipping container was the "standardized\" part. They only reduced costs if everyone was using the same dimensions and weights all over the world. This is because it allowed people to create automated systems for dealing with deliveries from all countries and firms. Let's suppose there are two players: Europe and the USA. Each player needs to choose whether to use 4.01am containers or 12 meter containers. The payoffs are below: Europe 40 foot 12 m 40 foot 3,1 US 12 m 1,3 a. What is/are the pure-strategy Nash equilibria in this game? (2pts) b. Which, if any, pure-strategy equilibrium is/are Pareto efficient? (2pts) c. Does this game have a mixed strategy Nash equilibrium? (1pt) d. The International Standards Organization (over a lot of time and many meetings} chose 40 foot to be the standard container size (there are actually 5 standard sizes used by different countries). What potential problem has the International Standards Organization dealt with? [The answer is a term from the course] (1pt) e. We are now going to suppose that the US moves first, is observed by Europe, and then Europe moves. The nal payoffs are the same as in the payoff matrix. You are now going to solve for the subgame perfect equilibrium using backwards induction. [It might help you to draw a game-tree, although it is not necessary] i. What is Europe's best-response if the US chooses 40foot? (1pt) ii. What is Europe's best-response is the US chooses 12m? (1pt) iii. In the subgame perfect equilibrium what will the US choose and what will Europe choose? (1pt) iv. Does this game have a first-mover advantage, 3 second-mover advantage, or does it make no difference moving first or second? (1pt)