PRINCIPLES OF MICROECONOMICS CHAKRABARTI Deadline: June 20, 2012 You must submit your answers by the...

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PRINCIPLES OF MICROECONOMICS CHAKRABARTI Deadline: June 20, 2012 You must submit your answers by the deadline (above) in PDF as an attachment to an electronic mail addressed to  XXXXXXXXXX. Hand-written answers and/or hand-drawn graphs will not be graded. Any answer without clear and precise explanation will not receive any credit. Good Luck! ? Question 1. Libertyville has two optometrists, Dr. Smith (S) and Dr. Jones (S). Each optometrist can choose to advertise his service or not. The net revenue to each optometrist, in thousands of dollars, is listed on the payoff matrix below. Answer questions a through c: a. [10 points] Does Dr. Smith have a dominant strategy? b. [10 points] Does Dr. Jones have a dominant strategy? c. [ 5 points] Does a Nash equilibrium exist for this game? Dr. Smith (S) Advertise Don’t advertise Dr. Jones (J) Advertise S: $383 J: $373 S: $384 J: $413 Don’t advertise S: $423 J: $363 S: $403 J: $393 Question 2. [25 points] Suppose the market for cigarettes is characterized by the following information: Qd = 70 – 5P [Demand] Qs = 3P – 10 [Supply] Suppose the government imposes a sales tax of $2 per unit. Answer questions (i) through (v) below: i) Calculate the magnitude of the consumer surplus and producer surplus in the pre-tax equilibrium. ii) Calculate the tax revenue in the post-tax equilibrium. iii) Calculate the change in consumer surplus due to the sales tax. iv) Calculate the change in producer surplus due to the sales tax. v) Calculate the Dead-Weight-Loss due to the sales tax. [Note: P = price per unit; Qd = millions of units demanded; Qs = millions of units supplied]
	
Document Preview: Final Examination #1 
Economics 103: PRINCIPLES OF MICROECONOMICS 
CHAKRABARTI 
 
Deadline: June 20, 2012 
 
You must submit your answers by the deadline (above) in PDF as an attachment to an electronic mail 
addressed to  XXXXXXXXXX. Hand-written answers and/or hand-drawn graphs will not be graded. 
Any answer without clear and precise explanation will not receive any credit. 
 
Good Luck! 
? 
 
Question 1. Libertyville has two optometrists, Dr. Smith (S) and Dr. Jones (S). Each optometrist can choose to 
advertise his service or not. The net revenue to each optometrist, in thousands of dollars, is listed on the payoff matrix 
below. Answer questions a through c: 
 
a. [10 points] Does Dr. Smith have a dominant strategy? 
b. [10 points] Does Dr. Jones have a dominant strategy? 
c. [  5 points] Does a Nash equilibrium exist for this game? 
 
  Dr. Smith (S) 
   Don’t 
Advertise advertise 
 Advertise S:         $383  S:      $384 
Dr. Jones (J) J:         $373  J:       $413 
 Don’t S:      $423 S:      $403 
advertise J:       $363 J:       $393 
 
Question 2. [25 points] Suppose the market for cigarettes is characterized by the following information: 
   
   Qd = 70 – 5P   [Demand]   Qs = 3P – 10   [Supply]     
 
Suppose the government imposes a sales tax of $2 per unit. Answer questions (i) through (v) below: 
 
i) Calculate the magnitude of the consumer surplus and producer surplus in the pre-tax equilibrium. 
ii) Calculate the tax revenue in the post-tax equilibrium. 
iii) Calculate the change in consumer surplus due to the sales tax. 
iv) Calculate the change in producer surplus due to the sales tax. 
v) Calculate the Dead-Weight-Loss due to the sales tax. 
 
[Note: P = price per unit; Qd = millions of units demanded; Qs = millions of units supplied]

Robert · Accepted Answer

Solution to Question 1 
The dominant strategy of any player is the strategy which gives maximum payoff to a player 
regardless of what was the strategy of the other player. 
(a) In the question the payoff matrix can be used to calculate the dominant strategy of each 
player. 
Dr. Smith does not have a dominant strategy as he would choose not to advertise if Dr. 
Jones chooses to advertise and he would choose to advertise if Dr. Jones chooses not to. 
(b) The dominant strategy for Dr. Jones is to advertise because whatever be the choice of Dr, 
Smith, he would get a higher pay off by choosing to advertise.

PRINCIPLES OF MICROECONOMICS CHAKRABARTI Deadline: June 20, 2012 You must submit your answers by the deadline (above) in PDF as an attachment to an electronic mail addressed to XXXXXXXXXX....

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