1 Using examples and evidence from throughout the module, explain the concept of the dominant strategy equilibrium

1.Firm 1 and Firm 2 are two producers of widgets. Each firm produces its own widget type a constant unit cost c1=15and c2=30, for Firm 1 and Firm 2 respectively. The market prices for the two goods are determined by the inverse demand functions:

p₁?q₁,q₂)=200-2q₁-q₂

p₂ (q₁,q₂)=200-q₁-2q₂

where q₁and q₂are quantities of the two varieties produced by Firm 1 and 2, respectively.Firms compete on quantity and can choose any quantity level.

(a)Define the best reply functions of the firms;

(b)Find the quantities produced in equilibrium and prices at which the goods are sold;

2 Consider the following two player game in normal form:

Player 2 L C R T Player 1 0, 5 2, 3 2, 3 M 2, 3 0, 5 3, 2 B 5, 0 3, 2 2, 3 O