Suppose that two players are playing the following game. Player A can choose either Top or Bottom, and Player B can choose either Left or Right. The payoffs are given in the following table: Player B LEFT RIGHT Top 4 5 1 4 Player A Bottom 5 1 3 8 where the number on the left is the payoff to Player A, and the number on the right is the payoff to Player B.

A)  Does player A have a dominant strategy, and if so what is it?

B)  Does player B have a dominant strategy and if so what is it?

D)  If each player plays her maximin strategy what will be the outcome of the game?

E)  Now suppose the same game is played with the exception that Player A moves first and Player B moves second. Using the backward induction method discussed in the online class notes, what will be the outcome of the game?

 Suppose a monopolist faces the following demand curve: P = 180 - 4Q. Marginal cost of production is constant and equal to $20, and there are no fixed costs.

A)  What is the monopolist's profit maximizing level of output?

B)  What price will the profit maximizing monopolist charge?

C)  How much profit will the monopolist make if she maximizes her profit?

D)  What is the value of consumer surplus?

E)  What is the value of the deadweight loss created by this monopoly? 

Suppose the demand for a product is given by P = 100 - 2Q. Also, the supply is given by P = 20 + 6Q.

A)  What is the equilibrium price and quantity of the product?

B)  What is the price elasticity of demand at the equilibrium price? For the next 3 questions, assume that there is a $8 per unit excise tax levied on the consumers of the product.

C)  What price will buyers pay after the tax is imposed?

D)  What is the deadweight loss created by the tax? E)  What is the quantity of the good that will be sold after the tax is imposed?

Assume Nebraska and Virginia each have 100 acres of farmland. The following table gives hypothetical figures for yield per acre in the two states: Nebraska Virginia Wheat 5 2 Cotton 6 3

A)  Who has the absolute advantage in the production of cotton? Who has the comparative advantage in the production of wheat?

B)  In this exercise, you will find actual points on the combined PPC of the two states. For each of the following values of one good, calculate the maximum amount of the other good that the two countries could produce working together. Wheat Cotton 200 240 600 550

C)  In Virginia, what is the marginal rate of transformation between wheat and cotton?