hw6 - S '11 Prof. Stahl Eco 354K - Problem Set 6 Due: March...

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S '11 Prof. Stahl Eco 354K - Problem Set 6 Due: March 3 1. The Military Draft . During the Vietnam War, the US government wanted to motivate teenagers to register for the military draft. The problem faced by the government was that it would be impossible to punish everyone involved in any large-scale draft evasion, and hence many teenagers would be willing to risk being prosecuted to avoid being drafted. To make the problem stark and simple, suppose the government could prosecute only one person who failed to register, and suppose prosecution would result in a 5 year jail sentence. Assume that the Selective Service of the government calls the teenagers to register in alphabetical order, that each teenager observes the actions of all teenagers called before him, and that if a teenager misses this one opportunity to register he cannot register later. Further, assume that the government prosecutes the first teenager that fails to register when called. Draw the game tree and solve using backward induction. 2. Entry Deterrence . Suppose there is one incumbent monopolist and one potential entrant in a given market. If the potential entrant stays out, then the monopolist will receive monopoly profits of 100, while the potential entrant will receive profits of 10 from other endeavors. On the
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hw6 - S '11 Prof. Stahl Eco 354K - Problem Set 6 Due: March...

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