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Homework 1

This document provides instructions and problems for a homework assignment on game theory. It includes 4 problems: 1) representing a story about two generals deciding whether to attack as a strategic-form game, 2) identifying which strategies survive iterative deletion of strictly dominated strategies in two games, 3) presenting the payoff matrix for a duopoly market with firms choosing prices and deriving the weakly dominated strategies, and 4) analyzing a Cournot duopoly game and proving that both firms producing a quantity of 8 is the only outcome surviving iterative deletion of strictly dominated strategies.

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Luka Janjalashvili
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45 views2 pages

Homework 1

This document provides instructions and problems for a homework assignment on game theory. It includes 4 problems: 1) representing a story about two generals deciding whether to attack as a strategic-form game, 2) identifying which strategies survive iterative deletion of strictly dominated strategies in two games, 3) presenting the payoff matrix for a duopoly market with firms choosing prices and deriving the weakly dominated strategies, and 4) analyzing a Cournot duopoly game and proving that both firms producing a quantity of 8 is the only outcome surviving iterative deletion of strictly dominated strategies.

Uploaded by

Luka Janjalashvili
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Game Theory

Giorgi Piriashvili Homework 1 Fall 2023

Goals and Instructions.


This homework aims to help you with basic skills of how to write down games and apply some of the
solutions concepts that we covered so far (e.g., IDSDS). Please, upload a scanned copy of your answer as
PDF file on Moodle. The deadline for this homework is October 7, 11:59 PM.

Problem 1.
Consider the following story: “Two generals are deciding whether to attack a common enemy. They cannot
communicate with one another, and must decide simultaneously. If both attack, they will be successful; if only
one attacks whilst the other does not, the enemy will prevail. Of course, attacking is a costly business: but a
successful attack will result in a promotion to Field Marshal something every general would like.”

1. Represent this story as a strategic-form game.

2. In your representation, are there any dominated strategies?

3. What are the (pure-strategy) Nash equilibria?

Problem 2. Which strategies for each player survive the iterated deletion of strictly dominated strategies
in the following games? Game 1 is given by:

Player 2
a b c d
A 1, 1 0, 2 3, 1 4, 0
B 3, 2 1, 1 1, 3 0, 4
Player 1
C 1, 6 2, 5 0, 4 6, 5
D 4, 3 6, 4 2, 1 5, 2

and Game 2 is:


Player 2
L C R
T 2, 3 3, 2 1, 1
Player 1 M 3, 2 2, 3 1, 1
B 1, 1 1, 1 6, 0

Problem 3. The market demand for a good is Q = 6 − P where Q is the (total) quantity demanded
and P is the price. Assume that prices can only be quoted in dollar units (0, 1, 2, 3, 4, 5, 6 dollars).
There are two firms in the market and each has production cost zero. If there is a lower priced firm, then
it meets all the demand. If the two firms post the same price P , then each gets half of the market, i.e, the
demand for each is (6 − P )/2.
A firm’s profit is (own) price times the (own) quantity demanded. Present the seven–by–seven payoff
(profit) matrix when the strategies chosen by the two firms are any of the prices 0, 1, 2, 3, 4, 5, 6 dollars.
Perform iterative deletion of weakly dominated strategies.

Problem 4. Consider a Cournot-Duopoly in which two firms with 0 marginal cost face market demand
given by P = 24 − Q. Firms simultaneously choose how much to produce. If they produce q1 ≥ 0 and q2 ≥ 0,
market price will be 24 − (q1 + q2 ) if q1 + q2 ≤ 24, otherwise price is 0.

1. Write firms’ payoff functions

2. Firm 1, somehow figured out that firm 2 is going to produce q2 = 6 units. How much will firm 1
produce?

1
3. How should firm 1 (firm 2) if firm 2 (firm 1) produces q2 (q1 )

4. Firm 1 figured out that firm 2 is not going to produce more than 10 (q2 ≤ 10), what can firm 1 infer
from this information about its best response on q2 ?

5. Show that produce qi ≥ 24 is dominated

6. Prove that both firms producing 8 is the only outcome which survives Iterated Deletion of Strictly
Dominated Strategies

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