Assignment 1

ECN 217: MATHEMATICAL ECONOMICS-2

6/1/2021

General Instructions: Total Marks - 15. Submission Deadline: June 10, 2021
Question 1

## New names:
## * ‘‘ -> ...1
## * ‘‘ -> ...2
## * ‘‘ -> ...3

...1 ...2 ...3 B (Husband)

NA NA Ballet Boxing
A (Wife) Ballet 2,1 0,0
NA Boxing 0,0 1,2

From the above game of Battle of the Sexes:

i) Solve the game using dominance, Nash equilibrium and mixed strategies
ii) Define proper subgame and subgame perfect equilibrium game. Find out subgame perfect equilibrium
of the above game.
iii) What is backward induction? Show the game in extensive (tree) form and solve the game using
backward induction
iv) Explain stage games, repeated games and trigger strategy.
v) For repeated games with a) Definite Time Horizon and b) Indefinite Time Horizon, Explain the con-
ditions under which trigger strategies work to increase players’ payoffs. (Hints: Consider Prisoner’s
Dilemma game from textbook and focus on subgame-perfect equilibria of the repeated games)

Question 2

a) Differentiate between difference equation and differential equation.

b) Let the market demand and supply function be given by qt D = A + Bpt and qt S = F + GEt−1 (pt )
where Et−1 (pt ) is the expected price.
i)Solve for the difference equation, find the steady state and determine whether quantity converges or
not. ii)Show the whole scenario graphically.

Question 3
3
For the difference equation yt+1 = 16 + yt 2 , Fnd the steady-state points, determine whether they are locally
stable, and sketch a phase diagram to investigate the global stability.

1
Question 4
Solve the following difference equations: i) 2yt+2 − 5yt+1 + 2yt = 4 ii) yt+2 + 2yt+1 + yt = 16
Question 5
Let K(t) represent the quantity of capital available in an industry at time t. Suppose that capital depreciates
¯ Derive and solve the differential
at the rate δ and that the rate of investment in the industry is a constant I.
equation implied by these statements.[Hint: See chapter 21, Micheal Hoy]
Question 6
Let’s consider a Fishery Model with a Constant Harvest Rate. Suppose that a fish population grows according
to the function g(y) = 2y(1 − y2 ) where y is the stock of fish. The fish population is subjected to a constant
level of harvesting by a fishing industry. If the harvest is a constant amount equal to 34 , will the fish
population reach a steady-state (positive) size, in which case the harvest is a sustainable activity, or will the
fish population decline and become extinct?
Question 7
The Neoclassical Model of Economic Growth: let’s consider the nonlinear differential equation for the
capital—labor ratio k̇ = sf (k) − nk which describes growth of an economy. Describe the derivation process
of the differential equation and explain motion and stability of the capital stock using phase diagram.
Question 8
Solve ( Find complete solution= homogenous solution + particular solution) the following linear, autonomous
and second order differential equation: ÿ + 12 ẏ + 64
3
= 10.
Best wishes!