Economics 115bIntroductory EconomicsSpring 2006George Hall and StaffProblem Set 8Due at the start of class Tuesday, April 4, 20061. Is each statement true or false? Explain your answer. To receive credit, you must explainyour answer.(a) The more elastic a firm’s demand curve, the greater its monopoly power.(b) A monopolist’s supply curve is the portion of the marginal cost curve where marginalcost exceeds the minimum value of average variable costs.(c) According the New York Times article in the reading packet, in-state applicants to stateuniversities have more elastic demand for public higher education than do out-of-stateapplicants.(d) A Nash equilibrium occurs when a player can choose a strategy that is optimal regard-less of its’ rivals’ actions.(e) According to Benjamin Friedman’s lecture, economic growth is only important on moralgrounds for the poorer three-fourths of the world.2. Recall the following set-up from problem set 7. George, Dick, Donald, Condoleezza, andKarl have been hard at work in a remote undisclosed location when they get a hankeringfor a good cup of coffee. They pile into their car and drive to the nearest town. There is asingle coffee shop, Lieberman’s Joe. The next nearest town is 25 miles away.Suppose that Lieberman is a monopolist. Each of Lieberman’s customers will buy at mostone cup of coffee but only if the price is less than or equal to their willingness to pay.George’s willingness to pay is $4; Dick’s $3; Donald’s $2; Condoleezza’s $1 and Karl’s $0.Lieberman’s marginal cost per cup is $1. The leads to the demand schedule for coffee shownin the accompanying table.Price of Quantity of coffeecoffee demanded$5 0$4 1$3 2$2 3$1 4$0 5Now suppose Lieberman can price discriminate perfectly (i.e. first-degree price discrimina-tion) among all five of his potential customers.(a) To which customers will he sell coffee and at what price?(b) How large is each individual consumer surplus? How large is total consumer surplus?Calculate producer surplus by summing the producer surplus generated by each sale.1Economics 115bIntroductory EconomicsSpring 2006George Hall and Staff3. What is the Nash equilibrium in the following game?Player Twoleft rightPlayer Oneup 2, 6 8, −5down 0, 9 12, 34. Ignoring mixed strategies, does the following game have a Nash equilibrium? Does it havemore than one Nash equilibrium? If so, what are they?Player Twoleft rightPlayer Oneup 2, 1 1000, 900down 3, 2 2, 15. Does either player in the following game have a dominate strategy, and if so, identify it?Does either player have a dominated strategy, and if so, identify it? What is the Nashequilibrium of this game?Player Twoleft middle rightPlayer Oneup 15, 12 14, 8 8, 10down 13, 11 12, 9 5,
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