Keep Prices (8.2) Advertise Lower Prices (4.6) Firm 1 Firm 2 Not Advertise O Not Advertise: Keep Prices O Advertise: Lower Prices O Not Advertise; Lower Prices Advertise: Keep Prices Keep Prices (6,10) The subgame perfect Nash-equilibrium is Lower Prices (3,7)

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Question 5 Consider following extensive form game Keep Prices (8,2) Advertise Lower Prices (4,6) O Advertise; Lower Prices Firm 1 O Advertise; Keep Prices Firm 2 O Not Advertise; Keep Prices Not Advertise The subgame perfect Nash-equilibrium is O Not Advertise; Lower Prices Keep Prices (6,10) O Lower Prices (3,7) 5 pts

P1 9,3 U D 2 a. Derive the best response of P1 when P2 takes the pure strategy and the best response of P2 w strategy. b. Show all the Pure-Strategy Nash Equilibrium. L 30, 40 5, 15 c. Find the Mixed-strate energy Nash Equilibrium. What is the probability that Pareto efficiency w equilibrium? F 0,0 1 8,5 P2 M R 20, 10 45, 35 d. Convert the above game tree to a normal form game. e. Show all Pure Strategy Nash Equilibrium. a. Show the Subgame Perfect Nash Equilibrium. G K N 0,0 2 0,0 M