MANAGERIAL ECONOMICS

Answers to Recommended Problems II

.

Chapter 10

1.

a.  HI = 70² + 20² + 10² = 5400

b.  HI = 50² + 5² + 5² + 5² + 5² + 5² + 5² + 5² + 5² + 5² + 5² = 2750

c.  HI = 10² + 10² + 10² + 10² + 10² + 10² + 10² + 10² + 10² + 10² = 1000   

.

2. a.

Q_i = 1 / (n + 1) * Q_C

P = MC => P = 0 => Q_C = 10 - 0 = 10

Q_i = 1 / (4 + 1) * 10 = 2  

.

3.

a.

Q_T = 4 * 2 = 8 => 8 = 10 - P => P = 2

b.

n = 3 => Q_i = 1 / (3 + 1) * 10 = 2.5

Q_T = 3 * 2.5 = 7.5 => 7.5 = 10 - P => P = 3  

. 

Chapter 11

1.

a.  A's dominant strategy is low price.

b.  B's dominant strategy is low price.

c.  The optimal strategy would be for each firm to go low price.

.

2.

a.  A has no dominant strategy.

b.  B's dominant strategy is low price.

c.  The optimal strategy for B would be to go low price.  Given that, A's optimal strategy would be to go low price.

d.  The Nash equilibrium is for A to go low price and B to go low price, yielding a profit of 1 for each firm.

.

8. 

a.  The dominant strategy for each firm would be to cheat.  This is the Prisoners' Dilemma because they would have been better off if they had cooperated and didn't cheat.

b.

A now has no dominant strategy.  B's dominant strategy is still to cheat.  Given that, the Nash equilibrium would be for B to cheat and A to not cheat.

.

10.

a.  A's dominant strategy is to go with a high price.  B has no dominant strategy, but given A's, the Nash equilibrium would be for B to enter.

b.  A's threat is not credible because its dominant strategy is to go with a high price.

c.  Skip

.

13.

a.  Boeing's best strategy is to go with the Sonic.

b.  Airbus's best strategy is to respond with the Jumbo.

.

14.

a.  The difference is that Boeing made the first move.

b.

There is no change in the result from question 13.