Question 5 (20 pts): Assume the two companies Airbus (A) and Boeing (B) compete on the aerospace market. Both companies

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Question 5 20 Pts Assume The Two Companies Airbus A And Boeing B Compete On The Aerospace Market Both Companies 1 (57.07 KiB) Viewed 58 times

Question 5 (20 pts): Assume the two companies Airbus (A) and Boeing (B) compete on the aerospace market. Both companies simultaneously decide whether they want to produce or not. a) Which three elements of a game are, in general, specified by a normal form representa- tion? b) Assume the following normal form representation: 0. A B produce don't produce produce 2.-10 200.0 don't produce 0.0 where x and y are unknown values. bl) For which values of x and y is "produce a strictly dominant strategy for player A? b2) Briefly explain what a strictly dominant strategy is. (1-3 sentences expected.) b3) For which values of r and y is "(don't produce, produce)" (i.e., player A plays don't produce and player B plays produce) a Nash equilibrium? c) Now assume r=-10 and y = 200, i.e., the normal form representation of the game is as follows: AB produce don't produce produce -10.-10 200,0 don't produce 0,200 0.0 = 7 cl) Derive all Nash equilibria in pure strategies. c2) Derive the Nash equilibrium in mixed strategies. Explain your analysis and provide some intermediate steps of calculation. c3) Calculate the expected payoffs of both players in the mixed Nash equilibrium derived in c2).