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aps8 - Intermediate Microeconomics Wissink BRIEF ANSWERS TO...

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Intermediate Microeconomics - Wissink BRIEF ANSWERS TO PROBLEM SET #8 1. False. The 1 st part of the statement is correct but the second is not. A dominant strategy will be a best response strategy. In fact, it’s a best response to each and every strategy of your rival. However, it is not true that all best response strategies are dominant strategies. Recall the price game in class. Chris’s best response to Roger choosing the high price was to choose the high price, while Chris’s best response to Roger choosing the low price was to choose the low price. Although a dominant strategy is a best response, a best response may not be a dominant strategy. It may be true that a player's best response to his opponent's first strategy is different from his best response to the opponent's second strategy. In this case, the best response is not a dominant strategy. 2. a. IRAQ Rest of OPEC (ROO) low high low ROO = 40, Iraq = 10 ROO = 30, Iraq = 15 high ROO = 20, Iraq = 3 ROO = 12, Iraq = 5 b. Best responses for ROO: If Iraq produces low, the rest of OPEC should produce low. If Iraq produces high, the rest of OPEC should produce low. Therefore, "low" is a dominant strategy for the rest of OPEC.
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