TopAceEssays

1. Definitions Briefly define the following and note why each term is important in
   industrial organization.

• Cross-price elasticity
• Marginal revenue
• Sub-Game Perfect Nash equilibrium
• Endowment effect
• Deadweight loss

1. Game Theory: Circle all the Nash equilibrium in the following one- shot games. You
   can assume that a game written in normal form is a simultaneous game and one written
   in extensive form is a sequential game.
   Player 1’s payoffs are listed first.
   a.
   Player 2
   Player 1 Blue Green
   Stripes (5,7) (6,3)
   Solids (2,8) (4,2)
   b.
   Chris
   David Left Center Right
   Top (5,5) (1,4) (0,3)
   Middle (4,1) (1,1) (2,2)
   Bottom (3,0) (2,2) (3,3)
   c. In the game for #2, if you found more than one Nash Equilibrium, what is the Pareto
   optimal Nash Equilibrium? Why?
   d. In the “Golden Ball” game show clip we watched in class, the contestants would split
   the money if they both chose Share, lose the money if they both chose Steal, and one
   would get all of the money if he chose Steal and the other chose Share. Assume the
   total pot is $1,000. Draw the normal form of the game and show the Nash Equilibrium.
   e. Player 1 moves first and can choose Left or Right. Player 2 then moves and can
   choose Up or Down. The payoffs are as follows (with Player 1’s payoff listed first).
   Left-Up = (5, 0), Left-Down = (3, 7), Right-Up = (3, 4), Right-Down = (4, 6).
   i. Draw the strategic form of the game and find the Sub-Game perfect Nash
   Equilibrium.
2. In what way is behavioral economics important to the study of firm’s strategic decision
   making? That is, in what ways might firms decisions change because of the fact that
   people, and especially consumers, are not perfectly rational? Be specific(150 words

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