14fe221ps2 - Econ 221(002 004 Winter Session Term I 2014 M Vaney Problem Set 2 This assignment is due Monday October 6 by 11:00am(my o ce BUTO 1011

# 14fe221ps2 - Econ 221(002 004 Winter Session Term I 2014 M...

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Econ 221 (002 & 004) Winter Session Term I, 2014 M. Vaney Problem Set 2 This assignment is due Monday October 6 by 11:00am (my o¢ ce - BUTO 1011). Remember to write your NAME, STUDENT NUMBER, DISCUSSION GROUP and the name of your T.A. at the top of the front page of the problem set and to staple your problem set together before handing it in. Failure to do so may result in loss of marks on the assignment. All work must be shown. Answer ALL questions. At least one question will be graded. 1. A particular street corner is a popular location for food carts to sell lunch to people working in the area. Two vendors must each decide in the morning whether to operate carts on a particular day or stay at home. One vendor operates a small size Hot Dog cart ( H ), the other vendor operates a Thai food cart ( T ). The Thai food vendor can choose to bring either a large cart or a small cart. There is a higher cost of operating the large cart (additional person), but the Thai food vendor will serve a larger share of the customers. There is °xed demand for 40 lunches at \$10 each (Total market sales/revenue will be \$400 ). The cost of operating a small cart is \$100 (for both H and T ), while the cost of operating the large Thai food cart is \$150 : When only one vendor shows up to the street corner they will get 100% of the sales. If both show up with small carts the two vendors split sales evenly. When the Thai food vendor shows up with a large cart they will get 75% of the sales ( 25% to the Hot Dog vendor). The Hot Dog vendor makes a decision of whether or not to operate a cart before the Thai food vendor. The decision of the Hot Dog vendor is observable to the Thai food vendor.

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• Spring '14
• SylviaBerryman
• Game Theory, food vendor, Thai food vendor

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