Suppose that there are only two manufacturers of pens, Stained Shirts and Ink Rink. Both can produce either 2 thousand or 4 thousand packages of pens per day. This yields a total production of 4, 6, or 8 thousand packages of pens per day. At these production levels, prices of pens are $25, $15, and $10 per package respectively. Assume there are no xed costs while marginal production costs for Stained Shirts are $4/package and $2/package for Ink Rink.

a) What is the normal form of this game and the resulting NE?

b) Assume that Ink Rink and Stained Shirts think that they will be playing each other until the end of time. Show that using a simple trigger strategy can yield a better payoff given a suitable level of patience (also known as a discount factor). What is this discount factor for each rm?

c) Explain why it makes sense that one rm has a higher discount factor.

NOTE: You are required to show your calculations to receive full credit