1
Economics 100C
Spring 2009 Final Exam (Section B00)
1. Consider the following twoplayer static game:
Player 2
X
Y
Z
Player 1
A
3,5
4,6
6,5
B
2,3
3,7
7,8
C
4,3
2,1
9,2
a) Does either player have a dominant strategy? Briefly explain your answer.
b) Which pairs of strategies represent Nash equilibria of the static game?
c) Draw the game tree associated with the sequential version of the game where player 1 moves
first and player 2 follows. Which pairs of strategies represent subgame perfect Nash equilibria of
the sequential game?
2. There are only two firms producing fire extinguishers, a good that is homogenous due to
government regulations that require fire department approval before fire extinguishers can be
sold. The cost of production for firm 1 is given by
, and the cost for firm 2 is given
by
. Inverse demand for fire extinguishers is given by
, where
is the
market price and
is the market quantity.
a) In attempting to maximize their profits, the two firms form a cartel. What quantity will each
firm produce?
b) Show mathematically and explain why each firm has an incentive to expand output starting
from the cartel quantities.
3. Consider a model of Cournot competition in a market with differentiated products. Two firms
compete in this market by choosing quantity, and each firm’s cost function is
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 Spring '10
 Ohly
 Economics, Game Theory, carefully labeled graph

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