Microeconomics Answers

Consider a two-player game where the player A chooses “up” or “down” and player B chooses

“left” or “right” Their payoffs are as follows: When player A chooses “up” and player B

chooses “left” they both get $3. When player A chooses “up” and player B chooses “right”

they get $2(for A) and $4(for B). When player A chooses “down” and player B chooses

“left” they get $1(for A) and $6(for B). Finally, when player A chooses “down” and player

B chooses “right” they both get $5. The two players decide simultaneously.

(a) Draw the strategic form game. Is there any dominant strategy? Justify your answer.

(b) Is there a Nash equilibrium in pure strategies? Justify your answer.

(c) Find the best response functions and the mixed strategies Nash Equilibrium if each

player randomizes over his actions.

(d) Show graphically the best response functions and the Nash Equilibria (in pure and in

mixed strategies).

With the help of well-labeled diagrams, compare the long run equilibrium of a firm under a

perfectly competitive market structure and a monopoly market structure. [20 ma

Suppose that the market demand for facial mud packs are given as follows: P = 2,200 – Q. Mud packs can be produced at no cost. Determine the level of output that would be produced by each firm in a Cournot duopoly in the long run. Calculate the price charged for mud packs. Show all calculations. [9]

Chapter 5 Review question on PCM

4. A Perfectly competitive firm has a domesticdemand curve is P = 100. The firm’s total cost

function is TC = 2Q2 + 20Q. Costs andprices are in ETHIOPIAN Birr. Based on thisinformation.

A. Drive the revenue function

B. Calculate the equilibrium level of output, and profit?

C. Calculate shout down level of output, and Profit?

D. Calculate the break even level of Output, and Profit?