1. Firm A Use the following matrix to answer the following questions. Firm B Strategy A B с D -10, -10 -100, 220 200, 140, -100 180 Assume that this is a simultaneous move one shot game. (a) What is each firm's best response to its rival's possible actions? (i) If Firm A chooses low price what is Firm B's best choice? (ii) If Firm A chooses high price what is Firm B's best action? (iii) If Firm B chooses low price what is Firm A's best choice? (iv) If Firm B chooses high price what is Firm A's best choice? (b) What is Firm A's dominant strategy (if they have one)? (c) What is Firm B's dominant strategy (if they have one)? (d) What is the Nash equilibrium? Refer to the normal-form game of price competition in the payoff matrix below. Firm B Low Price 0,0 Firm A Low Price High Price 50,-10 High Price -10, 50 20, 20 Suppose the game is infinitely repeated, and the interest rate is 10 percent. Both firms agree to charge a high price, provided no player has charged a low price in the past. This collusive outcome will be implemented with a trigger strategy that states that if any firm cheats, then the agreement is no longer valid and each firm may make independent decisions. Will the trigger strategy be effective in implementing the collusive agreement? Please show your calculations.

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