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Back to garne theory C. [Arms races] There are two countries, I {1, 2}, who invests amounts a.i O in arms. The utilities are

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Back to garne theory C. [Arms races] There are two countries, I {1, 2}, who invests amounts a.i O in arms. The utilities are given by u, (at, (12) = 13 (a, "2) u2(a1, (12) = 13 (02 01) and O > O. where B (x) 1. Give the FOCS for country I's and country 2's best response functions. 2. Explain why solving the gives rnutual best rc- sponses (i.e. what is it about thc utility functions that makes the characterize optima?).

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