SECTION A (COMPULSORY) QUESTION ONE In a two-player, one-shot simultaneous-move game, each player can choose strategy A or strategy B. If both players choose strategy A, each earns a payoff of K500. If both players choose strategy B, each earns a payoff of K100. If player 1 chooses strategy A and player 2 chooses strategy B, then player 1 earns KO and player 2 earns K650. If player 1 chooses strategy B and player 2 chooses strategy A, then player 1 earns K650 and player 2 earns KO. You are required to do the following: A. Write the above game in normal form. [2 Marks] B. Find each player's dominant strategy if it exists. [2 Marks] C. Find the Nash equilibrium (or equilibria) of this game. [2 Marks] D. Rank the strategy pairs by aggregate payoff (highest to lowest). [2 Marks] E. Can the outcome with the highest aggregate payoff be sustained in equilibrium? Why or why not? [2 Marks] F. The inverse market demand in a homogeneous-product Cournot duopoly is P = 100 - 2(Q1 + Q2) Costs are C1(Q1) = 120, and C2(Q2) = 20Q2. 1. Determine the reaction function for each firm. [5 Marks] 11. Calculate each firm's equilibrium output. [5 Marks] Calculate the equilibrium market price. What profits does each firm earn in equilibrium? [5 Marks] P P2 roo, 650 SA 500, 0 SB 100 , 650 OU, [TOTAL: 25 MARKS] p = 100- 2 ( Q. +Q2) P= 100 - 2 (12Q,+ 20Q2)