Intermediate Microeconomics, Winter 2008
Problem Set No 17
due: Wednesday, March 26;
Thursday, March 27
Reading:
To prepare for the next lecture, please read: Chapter 13, 483486
(Monopolistic Competition), Chaper 14, 513 514 (Repeated Games)
Solve the following problems from the book, Chapter 13: 16
°
, 34
W
,
Q1. Reconsider question 3 from Problem Set 16 (Guard for a Mall). Suppose
the two stores choose the number of guards sequentially, i.e., °rst store A chooses
whether to hire zero, one, two, or three guards and then store B chooses whether
to hire zero, one, two, or three guards.
a) Find all subgame perfect equilibria. For each subgame perfect equilibrium,
write down the complete equilibrium strategy of store B, i.e., write down how
many guards B would hire, after A has hired
X
guards.
b) Find some additional Nash equilibria in which
A
hires a di/erent number
of guards. Do not forget to write down the complete strategy of store
B
.
Q2. Suppose American and United compete on the ORDDTW route in a
Stackelberg fashion. As you know, demand on that route is given by
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 Winter '08
 Burbidge,John
 Game Theory, Monopolistic Competition, Subgame perfect equilibrium, additional Nash equilibria

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