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MidtermwithAns - Game Theory Econ 116A Midterm Exam Fall...

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Game Theory, Econ 116A Midterm Exam, Fall 2010 Instructions: You must keep your notes and books closed. Switch off your cell phones, laptops and any other electronic device that you may be carrying. The exam is of 50 points and the maximum time allowed is one hour and 20 minutes. You may use calculator. 1. Consider the following Cournot duopoly model set up. Q is the aggregate quantity produced, and c is the identical constant marginal cost. a. If the firms choose their quantities simultaneously then how much output is produced in the Nash equilibrium? (5) b. Draw the best response functions of the two firms and show NE graphically. (4) c. How does the output change when the firms form a cartel? (5) d. Explain in words how this game is equivalent to the Prisoners’ Dilem ma game. (5) 2. Two people enter a bus. Two adjacent cramped seats are free. Each person must decide whether to sit or stand. Sitting alone is more comfortable than sitting next to the other person, which is more comfortable than standing.
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