Problem_Set_06

# Problem_Set_06 - Economics 1100 Intermediate Microeconomics...

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Economics 1100: Intermediate Microeconomics Spring 2011 Problem Set 6 1. The two figures show the payoffs for two firms, A and B, in two different games. Answer the following two questions in both cases (explain your answers carefully). a. Determine the dominant strategies for each firm (if any). b. Determine the pure strategy Nash equilibrium for this game (if any). c. Use the backward induction method to solve for the equilibrium of the games below. 2. Alice and Bob drive toward each other in the middle of a road. As they approach the impact point, each has the option of continuing to drive down the middle of the road or to swerve. Both believe that if only one driver swerves, that driver loses face (payoff = 0) and the other gains in self- esteem (payoff = 2). If neither swerves, they are maimed or killed (payoff =- 10). If both swerve, no harm is done to either (payoff = 1). a. Show the payoff matrix for the two drivers engaged in this game of chicken. Using pure strategy only, determine the Nash equilibria for this game. b. Find the mixed-strategy Nash equilibrium for this game. Now suppose Bob and Alice decide to settle their differences using a less dangerous

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Problem_Set_06 - Economics 1100 Intermediate Microeconomics...

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