Solution
Robert answered on
Dec 23 2021
Exercise 4
A)
*All profit figures are in billions.
B) A strategy is strictly dominated if, regardless of what any other player do, the strategy earns a
player a smaller payoff than some other strategy. If Target plays RFID Tags then Wal-Mart will
play RIFD Tags and if Target plays Bar codes Wal-Mart is in different between playing Bar
codes and RIFD tags as both will give him the same payoffs therefore, we may conclude Wal-
Mart has a weekly dominated strategy is to play Bar codes. A strategy is strictly dominant if,
egardless of what any other player do, the strategy earns a player a higher payoff than some
other strategy. No, Wal-Mart has no strictly dominant strategy we may conclude his weekly
dominant strategy is to play RIFD tags.
C) The pure strategy Nash equili
ium of this game are bar code, bar code and RIFD tags, RIFD
tags.
Exercise 5
A) A strategy is strictly dominant if, regardless of what any other player do, the strategy earns a
player a higher payoff than some other strategy. No, player 1 has no strictly dominated strategy
in this game.
B) For player 1 Top is strictly dominated by Middle so player 1 being rational will not play top.
Thus, if player 2 knows player 1 is rational and will not play top the player 2 can eliminate top
from player 1’s strategy space.
Therefore, we have a new game as shown below
Here, left is strictly dominated for player 2 by middle or right or ½ middle +½ right. Thus, if
player 1 knows player 2 is rational and will not play left the player 1 can eliminate left from
player 2’s strategy space.
Therefore, we have a new game as shown below
Here, bottom is strictly dominated for player 1 by middle . Thus, if player 2 knows player 1 is
ational and will not play bottom the player 2 can eliminate bottom from player 1’s strategy
space.
Therefore, we have a new game as shown below
Here, right is strictly dominated for player 2 by middle . Thus, if player 1 knows player 2 is
ational and will not play right the player 1 can eliminate right from player 2’s strategy space.
Therefore, the only strategy which survive iterated elimination of strictly dominated strategies is
middle , middle.
C) The only pure strategy Nash equili
ium in this game will be middle, middle.
Exercise 6
Given demand for consumer product as consumer Qd = 70 – P or P = 70 - q and firm cost total as
TC(q) = 300 + 10q.
A) A monopolist profit maximizing output occurs where MR = MC therefore, we have
Π= P*Q - TC = 70q – q*q – 300 -10q
Differentiating profit function with respect to output we have
D(Π)/Dq = MR – MC, at profit maximizing output MR-MC = 0. So, we have
70 – 2q – 10 = 0
q = 30, therefore profit maximizing output of the monopolist will be 30 units of output.
And profit maximizing price of monopolist will be P = 70 – 30 = 40 per unit.
B) The monopolist profit will be Π= P*Q - TC = 40*30 – 300 -10*30 = 600
Consumer surplus is the difference between the maximum price a consumer is willing to pay and
the actual price they do pay. Consumer surplus in this market will be given as ½*q*(willingness
to pay – price paid) = ½*30*30 = 30
C) First firm GoSolo profit function will be written as
Second firm HereICome profit function will be written as
GoSolo best response function will give, for each possible output of, HereICome the profit-
maximizing output of GoSolo, therefore we can calculate Gosolo best response function as
follows
HereICome best response function will give, for each possible output of, GoSolo the...