Econ 103
meozax0k
final_examination.docxECON. 103 SPRING 2017
FINAL EXAMINATION
Question 1. [30 points] Suppose two firms, A and B, are considering simultaneous introduction of new brands of cell-phones with the common knowledge that the payoff matrix is as follows:
Firm A Introduce
Do not introduce
Firm B
( -8,-8 50,1 1,5 0 2, 2 )Introduce Do not introduce
i) Is there a dominant strategy for either of the two players in this game?
ii) What is (are) the Nash equilibrium (equilibria) of this game?
iii) What would be the most likely outcome of this game, if A can bring the new brand to the market earlier than B?
Question 2. [20 points] Suppose the demand curve representing phone calls placed by Michconsin Electronics (ME) remains unchanged over time and is linear. ME currently uses MCI for phone calls and places 100 calls per month at a price of $0.80 per phone call. ME used to subscribe to AT&T and placed 90 calls per month at a price of $.90 per phone call, but switched to MCI to take advantage of the lower price. To lure customers like ME, AT&T recently modified its pricing structure to the following: $1.00 per call for the first 60 calls, $.80 per call for the next 40 calls, and $.50 per call for all remaining calls. Calculate the change in consumer surplus for ME if ME switches back to AT&T.
