# hw2_answerkey - Econ 440 September 2007 Peter Norman...

This preview shows pages 1–5. Sign up to view the full content.

Econ 440 September 2007 Peter Norman Homework 2 Answer Key 1. 2. a. Max A = (1 – y A – y B )*y A y A FOC: 1 – 2y A - y B = 0 R A (y B ) = (1 – y B ) / 2 By the same way, R B (y A ) = (1 – y A ) / 2

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
By solving reaction functions simultaneously, Nash Equilibrium: y A = 1/3 y B = 1/3 b. C = (1 – 2/3)*(1/3) = 1/9 (same for both firms) c. Max (1 – y)*y y FOC: 1 – 2y = 0 y = 1/2 ( y = y A + y B ) y A + y B = 1/2
Solution set to the problem is ( y A * y B * ) such that y A * + y B * = 1/2 (red line above) d. e. In voluntary provision of public good example, there is “underprovision”. Here, there is “overproduction”. There exists a region on the southwest of the equilibrium where both agents are strictly better off.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
3. a. Payoff functions are: I = (9 – g I – g S – c)*g I S = (9 – g I – g S – c)*g S b. max I = (9 – g I – g S - c )*g I g I FOC: 9 - 2g I – g S – c = 0 g I = (9 – g s – c)/2 By the same way, g S = (9 – g I
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 11/02/2008 for the course ECON 440 taught by Professor Peternorman during the Spring '08 term at UNC.

### Page1 / 8

hw2_answerkey - Econ 440 September 2007 Peter Norman...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online