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Unformatted text preview: ECON 325, IO (Fall 2005) Christoph Luelfesmann, SFU Homework Assignment #4 Note : This assignment is due on Friday, Nov 25, in class. 1.) Please solve Problem 3, ch. 11 (p. 264 3rd ed.) [Pr.2, Ch. 6, 2nd ed.] 2.) (Problem 5, ch. 11, 3rd ed.) Suppose firm 1 can choose to produce either good A, good B, both goods, or nothing. Firm 2, on the other hand, can produce only good C or nothing. Firms payoffs for each of these scenarios are as follows (first entry is firm 1s payoff, second entry firm 2s payoff): A:(20,0). A,B:(18,0). A,B,C:(2,-2). B,C:(-3,-3). C:(0,10). A,C:(8,8). B:(11,0). a) Set up the normal form game for when the two firms simultaneously choose their product sets. What is the Nash equilibrium (or equilibria)? b) Now suppose firm 1 can commit to its product choice before firm 2. Draw the extensive form of the game and identify its subgame perfect Nash equilibrium. Compare your answer to a) and explain....
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This note was uploaded on 09/18/2011 for the course ECON 325 taught by Professor Christophluelfesmann during the Fall '08 term at Simon Fraser.
- Fall '08