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  • ASSIGNMENT For Weekend Stu.

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    yimer
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    1) In the prisoner's dilemma game, each player's dominant strategy is to cheat, resulting in a Nash equilibrium where both players cheat and receive lower payoffs than if they had cooperated. Repeating the game three times does not allow for cooperative equilibrium since the dominant strategy incentive remains to cheat. 2) In a duopoly market, the Cournot-Nash equilibrium output levels and price can be found by obtaining each firm's reaction function from their cost functions and solving the simultaneous equations. 3) In a labor market with monopsony power, the equilibrium wage and employment level are where the marginal cost of labor equals the marginal revenue product of labor.

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    1) In the prisoner's dilemma game, each player's dominant strategy is to cheat, resulting in a Nash equilibrium where both players cheat and receive lower payoffs than if they had cooperated. Repeating the game three times does not allow for cooperative equilibrium since the dominant strategy incentive remains to cheat. 2) In a duopoly market, the Cournot-Nash equilibrium output levels and price can be found by obtaining each firm's reaction function from their cost functions and solving the simultaneous equations. 3) In a labor market with monopsony power, the equilibrium wage and employment level are where the marginal cost of labor equals the marginal revenue product of labor.

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    © All Rights Reserved
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    17 views2 pages

    ASSIGNMENT For Weekend Stu.

    Uploaded by

    yimer
    1) In the prisoner's dilemma game, each player's dominant strategy is to cheat, resulting in a Nash equilibrium where both players cheat and receive lower payoffs than if they had cooperated. Repeating the game three times does not allow for cooperative equilibrium since the dominant strategy incentive remains to cheat. 2) In a duopoly market, the Cournot-Nash equilibrium output levels and price can be found by obtaining each firm's reaction function from their cost functions and solving the simultaneous equations. 3) In a labor market with monopsony power, the equilibrium wage and employment level are where the marginal cost of labor equals the marginal revenue product of labor.

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    © All Rights Reserved
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    of 2

    1) Consider the following version of the prisoners dilemma game (Player one’s

    payoffs are in bold):


    Player 2
    Cooperate Cheat
    Player one Cooperate $10, $10 $3, $13

    Cheat $13, $3 $5, $5

    a. What is each player’s dominant strategy? Explain the Nash equilibrium of the
    game.
    b. Suppose that this game were played three times in a row. Is it possible for the
    cooperative equilibrium to occur? Explain

    2. Suppose an industry has a duopoly structure. Duopolist 1 has a cost function given by:
    c1(y1) = (y1)2 for y1 ≥ 0

    Duopolist 2 has a cost given by:

    c2(y2) = 12y2 for y2 ≥ 0 function

    Denoting total output produced in the industry by y = (y1 + y2), the inverse demand
    function for the good produced in the industry is given by:

    p = 100 – y

    (a) Find the reaction function of each duopolist.


    (b) Using (a), obtain the output levels that will be produced in a Cournot-Nash
    equilibrium, and the price level in such an equilibrium.
    (c) Illustrate your solution in (b) above in a suitable diagram.

    3. The employment of labour at the mining town of “Ogaden” by mining companies is a good
    example of monopsony. Suppose that demand for labour is given as:

    W=30,000-125L

    Where, W is the wage (annual wage), and L is the number of labour hired. The supply of labour
    is given by:

    W=1,000+75L

    (a) Find the number of labour and amount of wage that the monopsony would hire and
    pay respectively
    (b) If the monopsony faced an infinite supply of labor at the annual wage level of Birr
    10,000, how much labour would it hire?

    4. a. Briefly explain the difference between general and partial equilibrium using appropriate
    examples.

    b. List down the criteria for an outcome to be economically pareto optimal or efficient

    c. state the theorems of social welfare in the general equilibrium

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