Question 4 (25 points). Consider the following sequential-move game. (a) Find the subgame perfect equilibrium. (b) Which conditional strategic move can player 2 employ to alter the game’s outcome in a way that leaves his payoff higher than it would be in the SPE of the original game? (c) Is this strategic move a threat or a promise?

The purchasing agent for a company that assembles and sells air-conditioning equipment in a latin american country noted that the cost of compressors has increased significantly each time they have been reordered. the company uses an eoq model to determine order size. what are the implications of this price escalation with respect to order size? what factors other than price must be taken into consideration?