18. This question asks for the largest value for X which will enable us to predict for one-shot play that Firm 1 will choose High and Firm 2 will choose Low?

   An examination of the game confirms that Firm 1 does not have a dominant strategy. Whether or not Firm 2 has a dominant strategy depends on the value of X. If X < 6, Firm 2's dominant strategy will be to choose Low. If this is the case, Firm 1 will know this and will always choose High. Among the possible answers, 5 is the largest number less than 6. If X = 5 Low is a dominant strategy for Firm 2.

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