MICROECONOMICS

5.1 Starting with Colin, use successive elimination of dominated strategies to find all the pure- strategy Nash equilibria for the following game. Describe the process that you used to find the equilibria. Use this game to explain why it is important to describe an equilibrium by using the strategies employed by the players, not merely by the payoffs received in equilibrium. [7] COLIN Left Center Right Up 1, 2 2, 1 1, 0 ROWENA Level 0, 5 1, 2 7, 4 Down -1, 1 3, 0 5, 2 5.4 Kaya is a college student who has R10000 of income to spend each semester on books and pizza. The per-unit price of a pizza is R200 and the per-unit price of a book is R1000. 5.4.1 Graphically illustrate Kaya's budget constraint. [1] 5.4.2 Now, suppose Kaya's parents buy her a R6000 gift certificate each semester that can only be used to buy books. On the same diagram from question 5.4.1, graph Kaya's budget constraint when she has the gift certificate in addition to her R10000 income. [1] 5.4.3 Explain whether Kaya is better-off with the gift certificates. [5]