Strategy thinking

Dr. Vidya Atal Strategic Thinking & Game Theory

Module 9 Assignment

Answer all the questions. Remember that every part of the question has points assigned; by just submitting an answer to each part you can get 50% submission credit, but if you do not submit an answer to a part, you get 0. So play strategically! Please upload the images of your answers on Canvas before the due date.

1. Consider the used car market for 2011 Citrus. Buyers are willing to pay up to $18000 for a peach and $8000 for a lemon. The owner of a peach values it at $12500 and the owner of a lemon values it at $3000.

(a) What price would a buyer be willing to pay for an unknown type of 2011 Citrus if the fraction of peaches in the population were 0.6? Will there be a market for peach in this case? Explain why. (10 points)

(b) What price would a buyer be willing to pay if the fraction of peaches in the population were 0.2? Will there be a market for peach in this case? Explain why. (5 points)

(c) What is the minimum value of the fraction of peaches in the population so that the market for peaches does not collapse? (5 points)

2. In the following game, find out all possible Perfect Bayes Equilibrium (pooling and separating) in pure strategies. Show your work. (20+10 = 30 points)

3. Find out all possible Perfect Bayes Equilibrium (pooling and separating) in pure strategies. Show your work. (20+20 = 40 points)

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