QUESTION 4

Explain and discuss the game theory approach to modeling competition. In your answer cover the following:

a) What is the difference between the equilibrium in dominant strategies and Nash equilibrium? (6 marks) Show one game example in tabular (simple) form and the other in decision tree (extended) form to support your answer. (6 marks)

b) What kind of economic behavior pushes the players to follow a maximin strategy? (4 marks) Support your answer with a specific example. (4 marks)