Problem 1

0.0/3.0 points (graded)

Consider the following variation of what biologists call the chicken game:

Two drivers drive towards each other on a collision course

They have to choose whether to swerve or not

If they both swerve then each one of them will get a payoff of zero.

If no one swerves then both die which will give them a payoff of - 100(the value of their lives)

OF one driver swerves and the other does not, the one who swerved will be called a "chicken, " meaning a coward. The one who swerves will get a payoff of -1, while the one that drove straight will get a payoff of 1.

The matrix form of this game is given below.

SwerveStraight

Swervea, bc, d

Straight e, fg, h

What values do these payoffs take?

a =

b =

c =

d =

e =

f =

g =

h =

What are the Nash Equilibria of this game?

^{(Select each correct answer.)}

o(Swerve, Swerve)

o(Swerve, Straight)

oStraight, Swerve)

o(Straight, Straight)

oThere are no Nash equilibria

Problem 2

1 point possible (graded)

Acme and Tartine are identical bakeries and are the only suppliers of baguettes in San Franscisco. They have agreed to form a cartel: they jointly sell Q = 16 baguettes and charge p = 9. Each bakery shall produce half of the joint quantity. Acme is tempted to cheat on the cartel agreement and increase its own production by 2 units. Acme knows that if they cheat, there is a 50% chance Tartine will catch them and force them to pay a fine of F that is taken out from their profits. If the market demand curve is Q = 34- 2P and the marginal cost of producing baguettes is constant and equal to 1 (assume there are no fixed costs), how big does F have to be to make Acme indifferent between cheating and not?

F =