Question 1)

Iran recently made an agreement with the US and others that they will not take steps that will advance their military nuclear program. One of the threatsthe US made is that if Iran will continue the nuclear program the USwill reinstate the sanctions. Model the situation asa game, in which if Iran doesn't continue the program theUS and Iran get 0. If Iran decidesto continue, the US has two options-reinstate the sanctions and then Iran will get -100 and US -10, or, overlook and then the US gets αand Iran gets 20.

i) Draw the game tree.

ii) For which values of α the threat is credible?

iii) Find all the NEs of the game for different values of α.