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    Monopoly Solutions

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    zamir
    This document outlines the topics and questions that will be covered on a midterm exam for an advanced microeconomics course. The exam will include: 1) True/false questions about monopoly pricing, Nash equilibria, and mixed strategies. 2) Calculations involving the profit maximization of a monopoly firm operating in two markets. 3) Determining the Nash equilibrium for a game involving the effort decisions of business partners. 4) Analyzing the pure and mixed strategy Nash equilibria of a game where three firms choose morning or evening TV slots to advertise their products.

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    Monopoly Solutions

    Uploaded by

    zamir
    48 views2 pages
    This document outlines the topics and questions that will be covered on a midterm exam for an advanced microeconomics course. The exam will include: 1) True/false questions about monopoly pricing, Nash equilibria, and mixed strategies. 2) Calculations involving the profit maximization of a monopoly firm operating in two markets. 3) Determining the Nash equilibrium for a game involving the effort decisions of business partners. 4) Analyzing the pure and mixed strategy Nash equilibria of a game where three firms choose morning or evening TV slots to advertise their products.

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    This document outlines the topics and questions that will be covered on a midterm exam for an advanced microeconomics course. The exam will include: 1) True/false questions about monopoly pricing, Nash equilibria, and mixed strategies. 2) Calculations involving the profit maximization of a monopoly firm operating in two markets. 3) Determining the Nash equilibrium for a game involving the effort decisions of business partners. 4) Analyzing the pure and mixed strategy Nash equilibria of a game where three firms choose morning or evening TV slots to advertise their products.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    48 views2 pages

    Monopoly Solutions

    Uploaded by

    zamir
    This document outlines the topics and questions that will be covered on a midterm exam for an advanced microeconomics course. The exam will include: 1) True/false questions about monopoly pricing, Nash equilibria, and mixed strategies. 2) Calculations involving the profit maximization of a monopoly firm operating in two markets. 3) Determining the Nash equilibrium for a game involving the effort decisions of business partners. 4) Analyzing the pure and mixed strategy Nash equilibria of a game where three firms choose morning or evening TV slots to advertise their products.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Midterm Exam

    Date: June 23, 2010


    Subject: Advanced Microeconomics II (ECO601E)
    Professor: Yosuke YASUDA

    1. True or False (9 points)


    Answer whether each of the following statements is true (T) or false (F). You do
    NOT need to explain the reason.

    (a) When a monopoly …rm chooses the pro…t maximizing price, the elasticity of
    market demand at this monopoly price is ALWAYS (weakly) greater than 1.
    (b) A zero-sum game ALWAYS has more than one Nash equilibrium.
    (c) If a player randomizes pure strategies X and Y in a (mixed strategy) Nash
    equilibrium, she MUST be indi¤erent between choosing X and Y .

    2. Monopoly (10 points)


    Suppose a monopoly …rm operates in two di¤erent markets, A and B. Inverse
    demand for each market is given as follows.

    p(qA ) = 200 qA
    p(qB ) = 120 qB

    The cost function is given by


    1
    C(qA ; qB ) = (qA + qB )2
    2
    (a) Derive the pro…t function of this monopoly …rm, (qA ; qB ).
    (b) What are the optimal (i.e., pro…t maximizing) quantities qA and qB ?

    3. Nash Equilibrium (16 points)


    Monica and Nancy have formed a business partnership. Each partner must make
    her e¤ort decision without knowing what e¤ort decision the other player has made.
    Let m be the amount of e¤ort chosen by Monica and n be the amount of e¤ort
    chosen by Nancy. The joint pro…ts are given by 4m + 4n + mn, and two partners
    split these pro…ts equally. However, they must each separately incur the costs of
    their own e¤ort, which is a quadratic function of the amount of e¤ort, i.e., m2 and
    n2 respectively.

    1
    (a) Derive each partner’s payo¤ function.
    (b) Derive each partner’s best reply function and graphically draw them in a …gure.
    (Taking m in the horizontal axis and n in the vertical axis.)
    (c) Is this game strategic complementarity, strategic substitution, or neither of
    them? Explain why.
    (d) What is the Nash equilibrium of this game?

    4. Mixed Strategy (15 points)


    Three …rms (1, 2 and 3) put three items on the market and can advertise these
    products either on morning (= M ) or evening TV (= E). A …rm advertises exactly
    once per day. If more than one …rm advertises at the same time, their pro…ts become
    0. If exactly one …rm advertises in the morning, its pro…t is 1; if exactly one …rm
    advertises in the evening, its pro…t is 2. Firms must make their daily advertising
    decisions simultaneously.

    (a) Derive all pure strategy Nash equilibria.


    (b) Show the following type of Nash equilibria does NOT exist: One …rm chooses
    pure strategy M , and other two …rms use mixed strategies.
    (c) Derive a symmetric mixed strategy Nash equilibria. You can assume that each
    …rm chooses M with probability p and E with probability 1 p, then calculate
    an equilibrium probability, p.

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