game theory
5.xlsx
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Module 5 Problem Sets
Name:
Many retail stores offer to match or beat the price offered by the rival store. Explain why firms t
belong to a cartel might make this offer?
Explain why firms that
What are the main factors that increase the likelihood of a cartel being successful?
In a Nash-Cournot equilibrium, does an oligopoly firm produce at less than full capacity, at full
capacity, or more than full capacity? Please explain.
ull capacity, at full
If firms produce identical products and have the same constant marginal cost, m , explain why th
Nash-Bertrand equilibrium price and market quantity are the same regardless of whether there
two or more firms.
t, m , explain why the
ss of whether there are
In a monopolistically competitive market, the government applies a specific tax of $1 per unit of
output. What happens to the profit of a typical firm in this market? Does the number of firms in
market rise or fall? Please explain.
tax of $1 per unit of
e number of firms in the
Two firms compete by advertising. Given the payoff matrix to this advertising game, identify eac
firm’s best response to its rival’s possible actions. Does either firm have a dominant strategy? W
the Nash equilibrium?
Firm 1
Do Not Advertise
Advertise
1
Do Not
Advertise
0
2
Firm 2
2
Advertise
4
3
g game, identify each
minant strategy? What is
Advertise
0
1
Nicole employs Joshua. She wants him to work hard rather than loaf. She considers offering him
bonus or not giving him one. All else same, Joshua prefers to loaf. If they choose actions
simultaneously, what are their strategies?
Joshua
Work
Loaf
2
Bonus
-1
1
Nicole
-1
No Bonus
3
0
nsiders offering him a
oose actions
Loaf
3
0
Two firms face the following profit matrix:
Firm 1
Low Price
High Price
0
Low
Price
1
2
Firm 2
High
Price
2
7
0
6
6
Given these profits, Firm 2 want to match Firm 1’s price, but Firm 1 does not want to match Firm
price. Does either firm have a dominant strategy? Does this game have a unique, pure strategy N
equilibrium? Identify all pure- and mixed-strategy Nash equilibria?
2
6
want to match Firm 2’s
que, pure strategy Nash
…
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