1. Two banks are operating in a duopolistic market, and each is considering whether to cut their interest rates or leave them the same. They have the following payoff matrix: 

Bank

Maintain rate

Cut rate

Bank

Maintain rate Cut rate

(50, 50) (70, 20)

(20, 70) (30, 30)

a. Does either bank have a dominant strategy?

b. Does the above game represent a Prisoner’s Dilemma? Explain.

c. Is there any way in which the two banks can achieve co operation?

2. Assuming a linear market demand function and linear cost functions with no fixed costs, show the differences in output, price and profits between the Cournot and Stackelberg oligopoly models.