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Home Test - 1: Exercise 1

This document contains 9 exercises describing various game theory scenarios involving strategic interactions between players. Exercise 1 presents a 3x3 normal form game and asks to identify best responses, dominated strategies, and Nash equilibria. Exercises 2-6 analyze Cournot, Bertrand, and Stackelberg competition between two firms. Exercises 7-9 present extensive form games and ask questions about strategies, Nash equilibria, and weak dominance. The student is asked to provide concise synthetic answers to questions about the games rather than detailed explanations.

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Cindy Lee
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74 views4 pages

Home Test - 1: Exercise 1

This document contains 9 exercises describing various game theory scenarios involving strategic interactions between players. Exercise 1 presents a 3x3 normal form game and asks to identify best responses, dominated strategies, and Nash equilibria. Exercises 2-6 analyze Cournot, Bertrand, and Stackelberg competition between two firms. Exercises 7-9 present extensive form games and ask questions about strategies, Nash equilibria, and weak dominance. The student is asked to provide concise synthetic answers to questions about the games rather than detailed explanations.

Uploaded by

Cindy Lee
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
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Microeconomic and Games

May - June 2013


G. Fabbri

Home test - 1
The exercises of the test do not require a complete and
detailed response. You are asked only to give the synthetic result.
You can directly write the answers on this sheet once you have
printed them or you can simply send me an email with the answers if you prefer
Name and surname of the student :

Exercise 1
Consider the following normal form of a certain game.

Player 1

U
M
D

l
(5,7)
(6,2)
(6,5)

Player 2
m
r
(0,7) (4,6)
(7,2) (5,3)
(0,4) (3,7)

(i) What is the best response of Player 2 to the strategy M of player 1 ?


(ii) One of the strategies of Player 1 is strongly dominated by another
strategy of Player 1. Find them.
(iii) Find the Nash Equilibriums of the game (if they exist)

Exercise 2
Are the following statements True or False ?
(i) Consider a game (in normal form) N with two players : i {1, 2}.
Let us call Si the set of the strategies of player i. Assume that the
strategy s1 weakly dominates all the strategies s1 S1 and that the
strategy s2 weakly dominates all the strategies s2 S2 . Then (s1 , s2 )
is a Nash Equilibrium.

(ii) Consider a game (in normal form) N with two players : i {1, 2}.
Let us call Si the set of the strategies of player i. Assume that (s1 , s2 )
S1 S2 is a Nash Equilibrium. Then the strategy s1 weakly dominates
all the strategies s1 S1 and the strategy s2 weakly dominates all the
strategies s2 S2 .
(iii) Consider a game (in normal form) N with two players : i {1, 2}.
Let us call Si the set of the strategies of player i. Assume that the
strategy s1 S1 is the best response to the strategy s2 S2 and s2 is
the best response to the strategy s1 . Then (s1 , s2 ) is a Nash Equilibrium.
(iv) Consider a game (in normal form) N with two players : i {1, 2}.
Let us call Si the set of the strategies of player i. Assume that (s1 , s2 )
S1 S2 is a Nash Equilibrium. Then the strategy s1 S1 is in the set
of best responses to the strategy s2 S2 and s2 is in the set of the
best responses to the strategy s1 .

Exercise 3
The people of a certain city have to finance the construction of a new
hospital. We assume for simplicity that the number of inhabitants of the city
is two. Each of them can choose how much pay for the hospital given the
benefit he will get (the benefit will depend on the total amount employed in
the project).
More formally :
Citizen 1 choses her contribution x1 > 0. Citizen 2 chooses her contribution x2 > 0. The choice is simultaneous (and any player chooses her number
without knowing the choice of the other player).
At the end they will get an utility that we can estimate (in monetary
terms) as follows

- The payoff of Citizen 1 is x1 + x2 x1

- The payoff of Citizen 1 is x1 + x2 x2


(i) Find the best response of player 2 if player 1 choose x1 = 16
(ii) Find all possible Nash Equilibrium of the game (hint : they are
many)
(iii) Find the unique symmetric Nash Equilibrium (i.e. the unique Nash
Equilibrium for which x1 = x2 )

Exercise 4
Assume that

- In a market there are two producers.


- Any producer has a cost function of the form c(q) = 2q.
- The inverse demand function of the market is p(q) = 10 q
Find : the quantity produced by each producer, the price, the profit of
each producer if they compete `a la Cournot

Exercise 5
Assume that
- In a market there are two producers.
- Any producer has a cost function of the form c(q) = 2q.
- The inverse demand function of the market is p(q) = 10 q
Find : the quantity produced by each producer, the price, the profit of
each producer if they compete `a la Bertrand

Exercise 6
Assume that
- In a market there are two producers.
- Any producer has a cost function of the form c(q) = 2q.
- The inverse demand function of the market is p(q) = 10 q
Find : the quantity produced by each producer, the price, the profit of
each producer if they compete `a la Stakelberg, producer 1 is the leader
and producer 2 is the follower.

Exercise 7
The following tree represents a two-player game. At each node the player
can choose Left or Right (the actions are not written in the tree to
lighten the notation). In the tree the payoff (a, b) represents an utility a for
player 1 and an utility a for player 2.
Find a Nash Equilibrium using the backward induction.
Player1
Player2
(1,1)

(2,2)

Player2
(1,2)

Player1
(3,1)

Player2
(2,5)

Player1
(3,4)

(4,4)

Write the corresponding payoffs for Player1 and Player2. (Write only to
write the final payoff, not the whole strategy)

Exercise 8
Consider the game represented in Exercise 7 :
(i) How many are the strategies of Player1 ?
(ii) How many are the strategies of Player2 ?

Exercise 9
The meeting in HCMC game :
The structure of the game is the following
- There are two players, Player 1 and player 2 (that would like to meet
in a bar in HCMC).
- Each player can decide if going to the bar A or to the bar B (we
abbreviate the two actions with A or B).
- Player 1 moves first and choose A or B.
- Player 2 moves after player 1 and chooses A or B knowing the choice
of Player 1.
- If both players have chosen A then both win 1 dollar, if both choose
B then both win 2 dollars. If the two decisions are different they get
nothing.
(i) Describe the game in its extensive form drawing a tree.
(ii) Write the possible strategies of Player 2.
(iii) Are some of the strategies of Player 2 weakly dominated by others ?
(you can just answer yes or no, you dont need to justify the
answer)

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