E1)A prisoner's dilemma outcome can be avoided if it is played repeatedly for a finite, but sufficiently large, number of periods.

a)True

b)False

c)The answer is ambiguous

E2)Consider the following variation of what biologists call the chicken game:

Two drivers drive towards each other on a collision course

They have to choose whether to swerve or not

If they both swerve then each one of them will get a payoff of zero.

If no one swerves then both die which will give them a payoff of -100 (the value of their lives)

If one driver swerves and the other does not, the one who swerved will be called a "chicken," meaning a coward. The one who swerves will get a payoff of -1, while the one that drove straight will get a payoff of 1.

The matrix form of this game is given below.

Swerve Straight

Swerve a,b c,d

Straight e,f g,h

What values do these payoffs take?

a=?

b=?

c=?

d=?

e=?

f=?

g=?

h=?

E3)What are the Nash equilibria of this game?

(Select each correct answer.) More than one can be corret.

a)(Swerve,Swerve)

b)(Swerve,Straight)

c)(Straight,Swerve)

d)(Straight,Straight)

e)There are no Nash equilibria

E4)Acme and Tartine are identical bakeries and are the only suppliers of baguettes in San Francisco. They have agreed to form a cartel: they jointly sellQ=16baguettes and chargep=9. Each bakery shall produce half of the joint quantity. Acme is tempted to cheat on the cartel agreement and increase its own production by2 units. Acme knows that if they cheat, there is a 50% chance Tartine will catch them and force them to pay a fine ofF that is taken out from their profits. If the market demand curve isQ=342Pand the marginal cost of producing baguettes is constant and equal to1(assume there are no fixed costs), how big doesFhave to be to make Acme indifferent between cheating and not?

F=?