ECON 440/640

Problem Set 1

Problem Set 1
Due February 8th. No late problems sets accepted. You may work in groups of up to four people.

Problems from Gibbons
1.2, 1.4, 1.6, 1.8, 1.10

Other Problems
A Blotto Game (From Fun and Games by Binmore, problem 6.34) Colonel Blotto has four companies that he can distribute among two locations in three different ways: (3, 1), (2, 2), and (1, 3). His opponent Count Baloney has three companies that he can distribute in two different ways: (2, 1) and (1, 2). Suppose that Blotto sends m1 companies to location 1 and Baloney sends n1 companies to location 1. If m1 = n1, the result is a stand-off and each commander gets a payoff of zero for location 1. If m1 ≠ n1, the larger force overwhelms the smaller force without loss to itself. If m1 > n1, Blotto gets a payoff of n1 and Baloney gets a payoff of -n1. If m1 < n1, Blotto gets a payoff of -m1 and Baloney gets a payoff of m1. Each player’s total payoff is the sum of his payoffs at both locations. Find the normal-form of this game and determine a mixed-strategy Nash equilibrium. Bertrand Duopoly Consider the homogenous goods Bertrand variant we discussed in class (Gibbons’s problem 1.7 is about this model) but with differing marginal costs of production. Firm 1 pays c1 per unit produced and Firm 2 pays c2. Solve for the Nash equilibrium of this game and show that it is unique.

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