final exam fall 2009 answer key

# final exam fall 2009 answer key - FINAL EXAMINATION ECON...

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Problem 1 (13 points) There are two automobile companies, Red and Brown.  Each will develop either a new SUV or a new subcompact.  They will make  their decisions simultaneously.   If they both choose SUV or if they both choose subcompact, Red earns \$10 and Brown earns \$30.  If Red chooses SUV and Brown chooses subcompact , Red earns \$40 and Brown earns \$5.  If Red chooses subcompact and Brown  chooses SUV, Red earns \$35 and Brown earns \$15. (a) Present the payoff matrix for this game.  In your payoff matrix, let the rows be Red’s strategies and let the columns be Brown’s  strategies. (b) Define a dominant strategy.  Does Brown have a dominant strategy?  Does Red have a dominant strategy? Explain your answers in  2-3 sentences. (c) Define a Nash equilibrium.  How many Nash equilibria does this game have?  Explain your answer in 2-3 sentences. (a)  (b) A dominant strategy is a strategy that is the best strategy for a player regardless of the strategies chosen by the other players.  Neither Brown nor Red have a dominant strategy.  Red, for example, should choose Subcompact if Brown chooses SUV but should  choose SUV if Brown chooses Subcompact. (c) In A Nash equilibrium, Player A chooses the best possible strategy given Player B’s choice and Player B chooses the best possible
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## This note was uploaded on 09/25/2011 for the course BMGT 220 taught by Professor Bulmash during the Spring '08 term at Maryland.

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final exam fall 2009 answer key - FINAL EXAMINATION ECON...

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