Econ 521 - Week 2:
1. Best Response in Normal Form Games-
Consider the following game,
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2
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L
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C
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R
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1
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T
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0,0
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1,0
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1,1
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M
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1,1
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1,1
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3,0
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B
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1,1
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2,1
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2,2
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(a) Determine the best response of player 2.
(b) Plot your answer in (a)
(c) What would player 2 do if he thinks that p(T)=0 and p(B)=0.5?
2. Prisoner's Dilemma-
Consider the following Prisoner's Dilemma game,
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2
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C
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S
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1
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C
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1,1
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4,0
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S
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0,4
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3,3
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(a) Determine the best response of player 1 and player 2.
(b) Plot your answer in (a).
3. Plotting best response-
In the following normal form game, determine and plot player 1's best response.
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2
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I
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O
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1
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A
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0,2
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4,2
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B
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2,2
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2,2
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C
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4,2
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1,3
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D
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3,4
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1,3
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4. Cournot game and continuous strategies
Consider the situation of two firms, with inverse demand function given by
(a) Define formally this situation as a game.
(b) Determine the best response for each player.
(c) Plot your answer in (b).
(d) What is the effect of a technological change that increases firm's unit cost c on the production level?
(E) Solve the game using iterated removal of strictly dominated strategies.