h6s10 - ECO 304K INTRO MICRO SPRING 2010 Hickenbottom...

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ECO 304K INTRO MICRO SPRING 2010 Hickenbottom HOMEWORK #6 (Due May 7 th ) 1. There are two firms producing the same good. Each firm has the cost structure 30 ) ( 2 + = q q TC . These are the only two firms in the market where the MARKET demand for the good = P = -2Q + 50. a) Find the profit of each firm if EACH firm produces 5 units of output. Show that if one firm produces 6, but the other stays at 5, the firm producing 6 earns more profit. (1 point) b) Write the matrix for a game where the strategies for each firm are “produce 5” and “produce 6”. The numbers from (a) and (b) will help you fill in some of the payoffs but others will take some more calculation. (1 point) c) Explain why the game is a prisoner’s dilemma. (1 point) 2. Explain why, for the game below, one player does not have a dominant strategy but there is a Nash equilibrium. (2 points) A = 25 B = 22 5 5 6 6 F I R M A FIRM B A = 17 B = 0 A = 30 B = 19 A = 20 B = 20 3. A consumer has the following utility function in relation to their income. The
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This note was uploaded on 05/04/2010 for the course ECO 304K taught by Professor Hickenbottom during the Spring '10 term at University of Texas.

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h6s10 - ECO 304K INTRO MICRO SPRING 2010 Hickenbottom...

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