2. Consider the static game represented by the following payoff matrix:rс 1,12, -1-1,2R0,0(a) Find the Nash equilibrium of the above game.(b) If above static game is repeated T

(a) The Nash (NE) Equilibrium is a stable equilibrium state which is achieved by the interaction…

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.

Question

2. Consider the static game represented by the following payoff matrix:
r
с 1,1
2, -1
-1,2
R
0,0
(a) Find the Nash equilibrium of the above game.
(b) If above static game is repeated T <o times without discounting of
payoffs, what will be its subgame perfect Nash equilibrium?
(c) If the above static game is repeated an infinite number of times with
payoff discount factor being ổ = , what will be its subgame perfect
Nash equilibria? Interpret the economic meaning of parameter y.
Explain the intuition how parameter y can affect the equilibrium
outcome of the game.

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