Monopoly Solutions
Monopoly Solutions
Monopoly Solutions
(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 .
p(qA ) = 200 qA
p(qB ) = 120 qB
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?