Department of Economics
Principles of Microeconomics, Honors
A. Market Niche is important to any firm since
it confirms a certain degree of market power and pricing discretion.
This is a problem about entry and market niche; and it is a first problem in
1. Does Miss Anne Thrope have a dominant strategy?
2. Does Andy Royd have a dominant strategy?
3. Using "best response", how many pure strategy equilibria are
4. With what probability should Andy Royd play "Enter?"
5. With what probability should Miss Anne Thrope play "Stay Out?"
6. What is the expected payoff to Andy Royd from playing the mixed
7. What percent of the time will too many firms enter the robot market?
8. In the sense of maximizing total payoff to all players, is the mixed
strategy solution that you have found an efficient outcome?
9. In the sense that on average each player does as well as the other, is
the mixed strategy solution fair?
10. Is there a way to reconcile fairness and efficiency?
System Coordination (VHS v. Beta) was a problem when VCR's were
first introduced. A similar problem emerged with DVD and high density TV
so it is worth looking closely at coordination games and mixed
strategies. Sony and Panasonic can choose from either of two formats,
VHS or Beta. If they use the same format then they are better off.
If they use different formats then no one is better off. They payoffs
can be summarized as
11. There are two pure strategy equilibria in this game. What are
12. Are the pure strategy solutions fair in the sense of equal payoffs?
13. Are the pure strategy solutions efficient?
14. With what probability should Sony play Beta in a mixed strategy?
15. What is Sony's expected payoff in the mixed strategy solution?
16. Is the mixed strategy solution to the game fair in the sense of both
players getting the same payoff?
17. Is the mixed strategy solution to the game efficient in the sense of
maximizing the total payoff for all players?
are foremost in our minds now that the Christmas shopping season is behind
us. With expansion of retail outlets and the poor results of the season
Anna Conda, the VP for Sales and Marketing, must decide on a new strategy:
Periodic sales or 'everyday low prices.' When Conda's firm has a sale
they pick up new informed buyers who were waiting for a price drop, as well as
winning customers from their rival. If both firms have a sale the Anna
is worse off. If Anna holds her price when Turnitif has a sale then she
will pick up some customers who want her trademark. Anna Conda's
research assistant has determined that payoffs in their retail market are
18. Does Conda have a dominant strategy?
19. Does Turnitif have a dominant strategy?
20. Is there an equilibrium in pure strategies?
21. If Anna Conda starts a new campaign in which she promises sale prices
all of the time what will be her profits?
22. Is there a mixed strategy equilibrium? If your answer is yes then fill
in the blanks: