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practice%20final%201

practice%20final%201 - Economics 100C Spring 2009 Final...

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1 Economics 100C Spring 2009 Final Exam (Section A00) 1. Two firms ( A and B ) are considering bringing out competing brands of a healthy cigarette. Payoffs to the companies are as shown in the table ( A ’s profits are given first): Firm B Produce Don’t Produce Firm A Produce 3, 3 5, 4 Don’t produce 4, 5 2, 2 a) Briefly explain what a Nash equilibrium is. Then, find any Nash equilibria associated with the static game. b) Show the game tree associated with the sequential version of this game where firm A moves first, and then firm B makes its move. Briefly explain what a subgame perfect Nash equilibrium is. Find any subgame perfect Nash equilibria associated with the sequential game. Does this game present a first-mover advantage for firm A ? Why or why not? 2. A monopolist can produce at constant average and marginal costs of AC = MC = 5. The firm faces a market demand curve given by Q = 53 P . a) Calculate the profit maximizing quantity for this monopolist. Also calculate the market price and the monopolist’s profits. b) Suppose a second firm enters the market and that this firm has the same costs of production.
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