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University of California, Irvine
Department of Economics
Intermediate Economics II: Econ 100B
Summer 2008
Prof. Safarzadeh
Assignment # 2
Student Name
:_________________
I

Demand for a product is estimated to be
Q = 960  1.2P + 1.4Y + .003A
where, Q and P are the quantity and price of the product respectively, Y is income, and A is the advertising
expenditures.
All the variables are in the natural logarithmic form and all the estimated coefficients are statistically
significant.
The average annual sale and the average price of the product are 60000 units and $8000 respectively.
A.
Price elasticity of demand is , income elasticity of demand is , advertising elasticity of demand
is .
B.
The optimum level of advertising spending for the firm is .
2
Demand for a product is estimated to be
Q = 12000  9P + .004Y + .00012A
where, Q and P are the quantity and price of the product respectively, Y is income, and A is the advertising
expenditures.
All the estimated coefficients are statistically significant.
The average annual sale and the average
price of the product are 60000 units and $8000 respectively.
The firm’s average annual spending on advertising is
$2000000.
The GDP in the economy is 24000000.
A.
Price elasticity of demand is , income elasticity of demand is , advertising elasticity of
demand is .
B.
What is the optimum level of advertising spending for the firm? .
What would you advise the
firm ? ?
II Game Theory:
1
The payoff matrix of the market shares for the player
A
in a duopoly market (A, & B) is given as (the game is a
zerosum game):
Payoff Matrix of A
B
B1
B2
B3
A1
.8
.6
.5
A2
.9
.7
.8
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View Full Document A3
.6
.5
.4
a If player A takes strategy A1, what market share does A expects to earn from this
move?  What
strategy will B take to counter A’s strategy? Once B made its move, what strategy will A take?
.
b.
Is there a saddle point (Nash solution) to the game?  If yes what are the strategies? 
What is the
payoff for A?  What is the payoff for B? .
c.
Are there any dominated strategies?
If so delete the dominated strategies and write the payoff matrix in a
simplifies form.
2
The payoff matrix of the market shares for the player
A
in a duopoly market (A, & B) is given as (the game is a
zerosum game):
Payoff Matrix of A
B
B1
B2
B3
A1
.5
.3
.3
A2
.1
.3
.4
A3
.2
.6
.4
a What is the payoff to A if A takes the strategy A2 and B takes the strategy B3?
b
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This note was uploaded on 02/20/2009 for the course ECON 62240 taught by Professor Safarzadeh during the Winter '09 term at UC Irvine.
 Winter '09
 SAFARZADEH
 Economics

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