ECON 3600
Assignment 5
Due Thursday, March 8th.
Dynamic Games
1. Solve the following threeplayer game using backwards induction:
Players are A, B, and C. Payoffs are written as (A's payoff, B's payoff, C's payoff)
2. Stackelberg Competition
Two firms are competing over quantities. There is no cost of production and the product is
exactly the same whether purchased from Firm 1 or Firm 2. The market demand is:
Market Price = 10 – (Q
1
+Q
2
)
a. Assume both firms choose their output quantities simultaneously. Find the Nash equilibrium
price and output. Show your work.
b. Assume the game is sequential: Firm 1 chooses its output quantity first, then Firm 2 chooses
its output quantity. Find the Nash equilibrium price and output. Is there an advantage or
disadvantage from choosing first? Show your work.
C
B
A
(2, 1, 0)
(1, 2, 2)
(0, 100, 100)
(100, 100,1)
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View Full Document3. A PrincipalAgent Problem
An absentee landlord owns a farm and hires a laborer to work it. The output of the farm as a
function of the effort level,
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 Spring '12
 daniel
 Economics, Equilibrium, Game Theory, Stackelberg competition, Absentee landlord

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