Answer to Question #185992 in Economics for Josh

Question

1.      Consider two-country tariff game. Country 1 picks tariff x and country 2 picks tariff y. The payoffs are π₁=2000 + 60x + xy - x² - 90y for country 1, and π₂=2000 + 60y + xy - y² - 90x for country 2.

 

a)    Form the payoff matrix with two strategies: tariff and no tariff for the two countries.

b)    Compute the Nash equilibrium for this game.

Answer 1

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