ECON 233 – Introduction to Game Theory

Quiz 3

NAME:

ROLL NO.:

Date: 6th July 2017

Total Marks: 30
Time: 40 minutes

1. Consider the following game. Initially Bob decides whether he wants to stay in and play video
games or go out. If he decides to stay In, he gets a payoff of 1.5 and his friend Alice gets a payoff
of 0. If Bob decides to go out, he then plays the Battle of the Sexes game with Alice, whose
payoffs are given below.

Alice

C M
Bob c 2,1 0,0
M 0,0 1,2

a. Draw the Extensive Form of this game. (2 marks)

b. Identify the subgames in this game (1 mark)
c. State the Strategy Space for both players. (1 mark)
d. Draw the Normal Form of this game and find the Pure Strategy Nash Equilibria, if any.
(3 marks)
e. Find the Subgame Perfect Equilibria, if any. (2 marks)
2. Consider the Cournot duopoly in which two firms, 1 and 2, produce a homogeneous good, and
have total costs C1(q) = 4q and C2(q) = 2q, respectively. The market demand is Q = 12 - P.
a. Draw the Extensive Form of this game. (1 mark)
b. Find and plot the Best Response Function for each firm. (4 marks)
c. Find the equilibrium quantities, price and profits for each firm. (4 marks)
d. What is the effect of marginal costs of a firm and its competitive firm on its output and
profit? (2 marks)
3. Consider a Bertrand Oligopoly with 2 firms having identical marginal costs, c. The demand
function is P = a – bQ.
a. Write out the payoffs for firm 1. (2 marks)
b. State a symmetric Nash Equilibrium. (3 marks)
c. Is the following a Nash Equilibrium. Explain. (2 marks)
p1 = c
p2 = c + Ɛ
4. Answer ANY ONE of the following questions from either The Informant or Browser Wars
(3 marks)
a. What steps did Microsoft in its competition with Netscape?
b. What was Netscape’s case against Microsoft and what was the result?
c. Mark Whitacre blew the whistle on his employers ADM. What did he accuse them of
and how did he help the FBI?
d. Where was Mark Whitacre at the end of The Informant and why?