B 2 D/E F G/H (4,5) (0,2) (6,8) (6,5) (3,8) (4,5) (7,10) (5,6) (-1,0) Consider the game above and answer the following questions. a) Transform the game from extensive form to normal form. (5)

a) What is the pure strategy Nash equilibrium outcome if there is one? (solved)b) Is this a socially optimal outcome? If not, which outcome is preferred? (solved)c) Do all three solution approaches for simultaneous games work independently (not together)? If not, which do not? (solved)   d) Draw the game as a game tree (extensive form). (to be solved)e) Switch the payoffs in cells (A, A) and (D, D). What is the pure strategy Nash equilibrium outcome if there is one? (to be solved)

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Imagine that two firms in two different countries want to bring a new product to market. Due to economies of scale, if both firms do this, they will both lose £50 million. But if only one firm does this, it will gain £300 million. (a) What is the best strategy for firm A, if firm B has not yet entered the market, and why? (b) Illustrate this with a game theory diagram, showing appropriate payouts. (c) What is the welfare-maximising strategy for a government, and why?