There are only two suppliers of courses in finance in Brisbane, two private universi- ties: University A and University B. Given its available lecture halls, University A can let either 60 or 200 students enrol. University B can let either 80 or 160 students enrol. For simplicity, assume that costs are zero for both universities, and that all students view a finance course from University A as equivalent to a finance course from University B. Further, assume that the market always clears: no matter which enrolment caps Univer- sity A and University B set, the market price (= enrolment fees) adjusts so that there is no excess demand or excess supply of seats. The aggregate demand for courses in finance is given below (price in $1,000). PDip) SI 400 $2 360) $3 330 $4 300) $5 280 56 220 $7 180 58 140 (a) Complete the payoffs (in $1,000) in the following game matrix. In partic- ular, for each empty cell of the matrix, enter the appropriate profit of University A before the comma and the appropriate profit of University B after the comma. 80 160 60 480, 640 200 (b) If University A sets an enrolment cap of (), then which enrolment cap will University B prefer to set? Briefly explain. What are the enrolment caps of University A and University B in the Nash equilibrium of this game? Explain.
There are only two suppliers of courses in finance in Brisbane, two private universi- ties: University A and University B. Given its available lecture halls, University A can let either 60 or 200 students enrol. University B can let either 80 or 160 students enrol. For simplicity, assume that costs are zero for both universities, and that all students view a finance course from University A as equivalent to a finance course from University B. Further, assume that the market always clears: no matter which enrolment caps Univer- sity A and University B set, the market price (= enrolment fees) adjusts so that there is no excess demand or excess supply of seats. The aggregate demand for courses in finance is given below (price in $1,000). PDip) SI 400 $2 360) $3 330 $4 300) $5 280 56 220 $7 180 58 140 (a) Complete the payoffs (in $1,000) in the following game matrix. In partic- ular, for each empty cell of the matrix, enter the appropriate profit of University A before the comma and the appropriate profit of University B after the comma. 80 160 60 480, 640 200 (b) If University A sets an enrolment cap of (), then which enrolment cap will University B prefer to set? Briefly explain. What are the enrolment caps of University A and University B in the Nash equilibrium of this game? Explain.
Chapter18: Asymmetric Information
Section: Chapter Questions
Problem 18.7P
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Transcribed Image Text:There are only two suppliers of courses in finance in Brisbane, two private universi-
ties: University A and University B. Given its available lecture halls, University A can
let either 60 or 200 students enrol. University B can let either 80 or 160 students enrol.
For simplicity, assume that costs are zero for both universities, and that all students view
a finance course from University A as equivalent to a finance course from University B.
Further, assume that the market always clears: no matter which enrolment caps Univer-
sity A and University B set, the market price (= enrolment fees) adjusts so that there is no
excess demand or excess supply of seats.
The aggregate demand for courses in finance is given below (price in $1,000).
pDip)
$I 400
$2 360
$3 330
300
280
220
$7 180
58 140
(a)
Complete the payoffs (in $1,000) in the following game matrix. In partic-
ular, for each empty cell of the matrix, enter the appropriate profit of University A
before the comma and the appropriate profit of University B after the comma.
80
160
60
480,640
200
(b)
If University A sets an enrolment cap of 6), then which enrolment cap will
University B prefer to set? Briefly explain.
(c)
What are the enrolment caps of University A and University B in the Nash
equilibrium of this game? Explain.
19355 6 7
54
56
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