STRATEGY THINKING AND GAME THEORY

1. Find out all the pure strategy Nash Equilibria and Subgame Perfect Nash Equilibria in each of the following games. Show your work. (20 x 2 = 40 points) (a) E 3, 3, 6 A -1, 5, 7 G - 2, 0, 3 B 3 Z H * 7, 7, 2 G 0, 6, 1 D W C H 8, 6, 0 D *6, 2, 4 (b) X 3, 3 2 Y -0,0 W X . 0, 0 B Z - 4, 4 - 6, 2 2. Firm 1 chooses an advertising level a 2 0 first, which influences the demand and hence the price in the competition stage. After selection of advertisement level, firms 1 and 2 compete as Cournot duopolists with demand: p = 60a - q1 - 92. Total cost of production is Cq = 0 and total cost of advertisement is Ca = za3. Find out the Subgame Perfect Equilibrium of this game. Show your work. (20 points)