Consider the tariff game described.
(a) Find the best-response functions for the countries.
(b) Compute the Nash equilibrium.
(c) Show that the countries would be better off if they made a binding agreement to set lower tariffs (than in equilibrium). You do not need to speculate how such an agreement could be enforced.
(d) Using the graph of the best-response functions, determine the set of rationalizable strategies in the tariff game.