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Scenario: Effort. Consider a game in which player 1 selects effort x and player 2 selects effort y, where x and y must be between 1 and 12 (inclusive). Payoffs are given by: u1(x,y) = cxy - x2 , u2(x,y) = 2xy - y2 . where c > 0 is a parameter.
1. What is the best response function for each player?
2. What is the B1 and B2 for each player if c = 1?
3. What is the rationalizable set if c = 4? What if c = 2?
What is the incremental internal rate of return for keeping the property one additional year?
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