(solution) Could you please help me figure out this homework?

Could you please help me figure out this homework?

Homework #4 ( 40 points)

 

INTB-334, Fall 2015

 

Vibhas Madan

 

Due Date: Please turn in the homework by the end of the class-period on Monday,

 

December 7th Regional Trade agreements

 

1. The below figure shows the tariff game among large countries a. Redraw the payoff matrix for a game between a large and small country. ( 8

 

points)

 

b. What is/are the Nash equilibrium/equilibria assuming that the large country

 

applies an optimal tariff? ( 8 points)

 

c.

 

d. What does your answer to (b) tell you about the role of the WTO in a situation

 

like this? ( 8 points) Export Subsidies in High tech industry

 

2. Boeing and Airbus are the world?s only major producers of large, wide-bodied aircrafts.

 

But with the cost of fuel increasing and changing demand in the airline industry, the need

 

for smaller regional jets has increased. Suppose that both firms must decide whether they

 

will produce a smaller plane. We will assume that Boeing has a slight cost advantage over

 

Airbus in both large and small planes, as shown in the following payoff matrix (in

 

millions of U. S. dollars). Assume that each producer chooses to either produce only

 

large, only small, or no planes at all. a. What is the Nash equilibrium of this game? ( 8 points) b. Are there multiple equilibria? If so, explain why. Hint: Guess at an equilibrium

 

and then check whether either firm would want to change its action, given the

 

action of the other firm. Remember that Boeing can change only its own action,

 

which means moving up or down a column, and likewise, Airbus can change only

 

its own action, which means moving back or forth on a row. ( 8 points)

 

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