Suppose we believe the income response for hamburger consumption is positive (normal) at low income levels but becomes negative (inferior) at high income levels. Is the log-linear demand function a good choice for this particular product?
A) Yes, the log-linear model has an income elasticity that can be positive or negative.
B) No, the log-linear model has a constant income elasticity that cannot change with the income level.
C) No, the Engel curves for this case are vertical lines, and this behavior cannot be represented with the log-linear demand function.
D) none of the above
Question 2
Consider the Battle of the Sexes game:
Jim- wrestling Jim - opera
Joan - wrestling 2, 1 0, 0
Joan - opera 0, 0 1, 2
Suppose both players use mixed strategies for this game. Jim chooses wrestling with probability 0.9, and Joan chooses wrestling with probability 0.5. What are the expected payoffs for the players?
A) The expected payoffs are 0.95 for Joan and 0.55 for Jim
B) The expected payoffs are 0.55 for Joan and 0.95 for Jim
C) The expected payoffs are 0.95 for both players
D) The expected payoffs are 0.55 for both players
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