Question 1: A Common Resource GameTwo companies, Texaco and Exxon can drill a pocket of oil. If each

Question 1: A Common Resource GameTwo companies, Texaco and Exxon can drill a pocket of oil. If each drills only 1 well, they each get a profit of $5 million. If both of them drill 2 wells each, the drilling costs are higher and profits are lower, thus each makes only $4 million in profits. If one company drills only 1 well, whereas the other company drills 2 wells, the company with 2 wells is going to extract more oil and make a profit of $6 million, whereas the company with only 1 well is going to make a profit of only $3 million.1. Write the payoff matrix for the game.2. What is the dominant strategy for Texaco? What is the dominant strategy for Exxon?3. Assume the players do not cooperate and play the game only once. Solve the game for the Nash equilibrium (what is the strategy played by each player in the equilibrium) and what is the payoff? Briefly explain how you solved for the equilibrium.Question 2:Two cigarette manufacturers (Firm A and Firm B) are faced with lawsuits from states to recover the healthcare related expenses associated with cigarette smoking. Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illnesses). State prosecutors do not have access to the same data used by cigarette manufacturers and thus will have difficulty recovering full costs without the help of at least one cigarette firm study. Each firm has been presented with an opportunity to lower its liability in the suit if it cooperates with attorneys representing the states. If both concede that smoke causes lung cancer, firm A will incur a loss of $20 million while firm B a loss of $15 million. If both argue that there is no evidence that smoke causes cancer, then each will incur a loss of $10 million. If firm A argues that there is no evidence while firm B concedes that there is evidence, firm A will take most of the blame and pay the healthcare costs and its loss is $50 million while firm B’s loss is only $8 million. If however, firm B argues that there is no evidence while firm A concedes that there is evidence, firm B will take most of the blame and pay the healthcare costs and its loss is $20 million while firm A’s loss is only $5 million.1. If the game is non-cooperative and is played only once, what is the Nash equilibrium of the game (i.e., the strategies the 2 players play in equilibrium) and what are the corresponding payoffs? Briefly explain your answer by setting up the matrix of the game.Questions 3:Each year the United States considers renewal of Most Favored Nation (MFN) trading status with Farland (a mythical nation). Historically, legislators have made threats of not renewing MFN status because of human rights abuses in Farland. The non-renewal of MFN trading status is likely to involve some retaliatory measures by Farland. The payoff table below shows the potential economic gains associated with a game in which Farland may impose trade sanctions against U.S. firms and the United States may not renew MFN status with Farland. The table contains the dollar value of all trade-flow benefits to the United States and Farland.FarlandImpose trade sanctionsagainst U.S. firmsDo not impose trade sanctions against U.S. firmsUnitedStatesDon’t renew MFNstatus with FarlandU.S. trade value = $65 bFarland trade value = $75 bU.S. trade value = $140 bFarland trade value = $5 bRenew MFN statuswith FarlandU.S. trade value = $35 bFarland trade value = $285 bU.S. trade value = $130 bFarland trade value = $275 b1. If the game is non-cooperative and is played only once, what is the Nash equilibrium of the game (i.e., the strategies the 2 players play in equilibrium) and what are the corresponding payoffs? Briefly explain how you solved for the equilibrium.