Econ 301- Homework # 4

Game Theory

Find dominant strategy and Nash equilibrium in the following games:

Prisoner Y

ConfessRemain Silent

Prisoner XConfess5 yrs of prison each0 for X, 20 yrs for Y

Remain Silent20 yrs for X, 0 for Y1 year each

2.

3.

Oligopoly

For Cournot dupolists that face a market demand curve of P=44-Q and a constant marginal cost of 20, find each firm’s reaction function. Find the Cournot equilibrium price and quantity. If the firms colluded, what would the cooperative equilibrium quantity and price be?

Factor markets

6. Assume a local fast food restaurant that operates in a competitive labor market. The demand for labor is w=15-(1/2)L and the supply for labor is w= -3 +(1/2) L, w being wage and L being the number of workers.

Solve for the equilibrium wage in the competitive market.

Suppose the firms production function is Q= 6 L1/2. The price of the product is $4. Find the marginal revenue product of labor. (Hint: you will have to find the marginal product of labor first)

What will be the total amount of labor hired by this firm?

Draw a graph showing the profit maximizing level of labor the firm hires.

Firm and Externalities

7. Suppose Gatorhaus is a monopoly on all SFSU monogrammed items. The inverse demand curve the store faces is given by P=270-Q and its cost function is C(Q)= 4Q2+100.

Write down the revenue function for Gatorhaus and find the Marginal Revenue.

Find its marginal cost.

Find the profit maximizing output and price.

Extra credit (4 points)

Suppose the store’s loading dock faces the entrance of a campus building and the discarded boxes and paper (till they are cleaned out at a particular time of the day) generates a negative externality on the students. The marginal cost due to externality is MCE= 2Q. Find the socially optimal output.

Suggest a policy/strategy that could induce the store to produce the socially efficient output.

Subject | Business |

Due By (Pacific Time) | 05/10/2013 09:00 am |

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