AP® Microeconomics · Free response

Two grocers choose their opening hours: dominant strategies, Nash equilibrium and a town rule

write it first, then score yourself point by point

Short free-response question · four-function calculator · 5 points · about 12 minutes

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The question

Name: ______________________   Date: ____________   Two grocers choose their opening hours: dominant strategies, Nash equilibrium and a town rule (5 points)

Alder Market and Bexley Foods (invented) are the only grocery stores in a town. Each chooses, at the same time and without talking to the other, whether to keep Late hours or Regular hours. The matrix shows each store's weekly profit in hundreds of dollars; in each cell Alder Market's payoff is listed first. Both stores know the matrix.

  1. (A) Identify each store's dominant strategy, if it has one, and every Nash equilibrium. [2 points]

  2. (B) Explain how Alder Market can use Bexley Foods' dominant strategy to choose its own hours. [1 point]

  3. (C) The town passes a rule that both stores must keep Regular hours. Identify the change in each store's weekly profit compared with the Nash equilibrium, and explain which store would oppose the rule. [1 point]

  4. (D) Explain, using the numbers in the matrix, how the rule in part C changes the two stores' combined profit. [1 point]