Below, there are pairs of stage games and strategy profiles. For each pair, check
whether the strategy profile is a subgame perfect equilibrium of the game in which the
the stage game is repeated infinitely many times. 1. Stage Game: Linear Cournot Duopoly: There are two firms. Simultaneously each firm supplies qi ≥ 0 units of a good, which is sold at price p = max { 1 - (q₁ + q₂), 0 }. The cost is equal to zero. Strategy profile: There are two states: Cartel and Competition. The game starts at Cartel State. In the Cartel state, each supply qᵢ = 1/4, they remain in the next period; otherwise, they switch to the Competition state in the next period. In the Competition state, each supply qi = 1/2. In the Competition state, they automatically switch to the Cartel state in the next period.