PROBLEM SET 2
1. Explain the difference between a best-response, a dominant strategy, and a Nash Equilibrium.
2. What are the characteristics of a Prisoners Dilemma? Draw a 2-player matrix with payoffs
that make this game a Prisoners Dilemma.
3. Define Co
Advanced Microeconomic Theory EC104
Answers Problem Set 2
1. In the following two games nd the strategy proles that survive iterated elimination of dominated strategies. (In part b do not forget mixed strategies).
Answers to Exercises for Chapter 5
3. (a) La Boulangeries profit: Y1 = P1Q1 Q1 = P1 (10 P1 0.5P2) (10
P1 0.5P2) = P12 + 11P1 0.5P1P2 + 0.5P2 10. This function can be
rearranged to get Y1 = [0.5(11 0.5P2) P1]2 [0.5(11 0.5P2)]2 10 +
0.5P2. To solve without
180 COMBINING SEQUENTIAL AND SIMULTANEOUS MOVES
allows the identication of the different stages of play and the ways in which
those stages are linked together. Fulledged games that arise in later stages of
play are called subgames of the full game.
Microeconomics 2 - Rbert Veszteg
1. (Varian: 28.3.) The Hawk-Dove Game. This problem is based on an example
developed by the biologist John Maynard Smith to illustrate the uses of game theory
in the theory of evolution.