# The East and the West are about to implement a joint economic program. Each region must decide what the size of their contribution to the program will be. The East

The East and the West are about to implement a joint economic program. Each region must decide what

the size of their contribution to the program will be. The East must choose one of the following

contribution sizes: r3 = 3, r1; = 2, or n; = 1. The West must choose one of the following contribution

sizes: rw = 2, r”. = 1, or rw = 0. After spending some months doing research about the potential economic consequences of the program, you’ve arrived at these 6 conclusions regarding the spillovers

[payoffs] each region may obtain: – If East picks r5 = 3, then the East’s payoﬂ will be calculated as: é’rw, where rw is whatever contribution size the West chooses. – If East picks r5 = 2, then the East’s payoff will be calculated as: 2 — rw, where r”. is whatever

contribution size the West chooses. II If East picks TE = 1, then the East’s payoff will be calculated as: (rw — 1):, where rw is whatever

contribution size the West chooses. a If West picks rw = 2, then the West’s payoff will be calculated as: I}; + 1, where rE is whatever

contribution size the East chooses. a If West picks rw = 1, then the West’s payoff will be caICulated as: 2 – (r5 — 1), where r5 is

whatever contribution size the East chooses. – If West picks ti»: = I}, then the West’s payoff will be calculated as:«:; . (1’92, where n; is whatever

contribution size the East chooses. TASIGIQUESTIDNS

1.1 Write the strategic formfpayoﬁ’ matrix of the Game that represents this decision problem. 1.2 Write, in “3339”,,” (Strut) =" notation, what each region’s best response isfare to all the strategies

their opponent may choose. 1.3 Is r5 = 2 a weakly dominant strategy for the East? Whnyhy not?

1.4 Is rw = 2 a weakly dominant strategy for the West? Whthy not? 1.5 Identify the Nash Equilibriumlsjl for this Game and say whether it is (they are] a Strict Nash

Equilibriumls), Equilibrium{s} in Weakly Dominant Strategies, andf’or Equilibriurnls] in Strongly Dominant

Strategies. Explain your answers. 1.6 Find all the strategy combinations that Pareto-Dominate the Nash Equilibriumtsl 1.? Find all the Pareto Uptimals for this Game.

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