Economics 5. Consider a Prisoners' Dilemma game involving two players, N = (1,2), each of whom may choose either to co-operate (C) or to defect (D). The payoffs in this game are illustrated in the below table. Player 1 receives the first listed payoff in each cell while player 2 receives the second listed payoff in each cell. 2 C D C 3, 3 0, 4 D 4, 0 1, 1 a. Solve for the pure strategy Nash equilibrium of this static game. Are the players able to co-operate with one another? Explain why or why not. [5 marks] Suppose now that the above game is repeated infinitely many times and let 6 > 0 denote the common discount factor between periods. Suppose that the two players make the following agreement: "Play C in every period. If D is ever played, play D in every period thereafter." b. Explain how the one-deviation principle can be used to check whether the above agreement represents a subgame perfect Nash equilibrium of the infinitely repeated game. [5 marks] c. Use the method described in part b. of this question to calculate the values of the discount factor & for which the above agreement is indeed a subgame perfect Nash equilibrium of the infinitely repeated game. [10 marks]