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eco204_summer_2009_practice_problem_25

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Unformatted text preview: University of Toronto, Department of Economics, ECO 204 Summer 2009 S. Ajaz Hussain ECO 204 Summer 2009 S. Ajaz Hussain Practice Problems 25 Please help improve the course by sending me an email about typos or suggestions for improvements Question 1 In the US, TV networks' profits are a function of advertising which in turn is a function of ratings. TV shows ratings are proportional to the number of viewers. In this problem, you will analyze two TV networks' decision to schedule a "hit" show: each network's viewership depends on whether they go "head to head" (i.e. the same time slot). The TV networks ABC and NBC each have a "hit" show. ABC's hit show is Grey's Anatomy and NBC's hit show is Heroes. The profits of the two networks depend on viewership. For simplicity, suppose the hit shows can be scheduled at 8 pm or 9 pm: ABC "Grey's Anatomy" NBC "Heroes" 8 pm 9 pm 8 pm 36, 33 30, 36 9 pm 39, 28 32, 30 If the networks must announce the schedules simultaneously, what is the time slot of each hit show? Do not assume mixed strategies. Question 2 In 1992, Saudi Arabia and Iran (both members of OPEC) produced an average of 5m and 2m barrels of oil a day. Production costs were about $10 per barrel and the price of oil averaged about $20 per barrel. Each country had the capacity to produce an additional 1m barrels a day. At that time, it was estimated that each 1m barrels increase in supply would depress the price 1 University of Toronto, Department of Economics, ECO 204 Summer 2009 S. Ajaz Hussain of oil by $2 (in practice, this is estimated using price elasticities). (a) Fill in the missing profit entries in the table below: 2m Saudi Arabia 5m 6m Iran 3m (b) What actions will each country take? (c) Is this a prisoner's dilemma game? Question 3 (20072008 Problem) Two hospitals compete on the basis of service to patients. The following table gives the profits (in millions of $): Basic Hospital A's Services All Purpose Specialty Basic 5, 7 4, 5 6, 10 Hospital B's Services All Purpose 5, 4 8, 7 3, 12 Specialty 12, 6 7, 4 3, 3 (a) Does either hospital have a dominant strategy? If so, solve the game by dominant/dominated strategies. Show all steps below. (b) Solve for the pure strategy Nash equilibrium. Show your reasoning in the matrix below: (c) If these hospitals merge and coordinate their hospital services, what actions should they take? Explain briefly. If necessary, show your reasoning below: 2 University of Toronto, Department of Economics, ECO 204 Summer 2009 S. Ajaz Hussain Basic Basic 5, 7 4, 5 6, 10 Hospital B's Services All Purpose 5, 4 8, 7 3, 12 Specialty 12, 6 7, 4 3, 3 Hospital A's Services All Purpose Specialty 3 ...
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