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The following description will be used in questions 5a, 5b and 5c.   Two players play in accordance with the payoff matrix below.

Why is it important to study production functions such as f1 and f2?

This problem must be solved using KKT, and you already completed the first steps by answering questions 3a, 3.b, and 3c. Now, list and explain the remaining steps. (Note that you are not required to find the solution).

Determine the pure strategy Nash equilibria in the reduced game.

Assume A=100 and b=2. Find the monopolist’s optimal price and quantity.

Identify all dominated strategies.

Identify all dominated strategies.

Use comparative statics to determine if the monopolist profits will increase or decrease in b. 

The following description will be used in questions 2a through 2e and in bonus II.   A firm produces x according to the cost function c(x)=20x+25. The demand for x is represented by the inverse price demand curve p=A-bx, where p is the price faced by consumers and A and b are positive numbers.

What is the Expected Value of Perfect information on the payoff of the second investment?