Re Exam:

Methods of PPE 1
J.R. van den Brink, L.B. Decock, I.D. Lindner

December 13, 2017

12.00-14.45

 The duration of the exam is 2 hours and 45 minutes;

 This exam consists of 8 questions;
 You can score a maximum of 100 credits;
 It is allowed to use a calculator (it is not allowed to use a graphical calculator);
 Grades will be announced latest on January 10, 2018;
 Inspection of the exam is on January 11, 2018, at 13.00.
Number of the room will be announced later.

Question 1abcd 2abc 3abcde 4ab 5ab 6abcd 7ab 8ab

Credits 2222 10 9 6 22222 55 67 333 3 2 10 55

Good luck!
1. This question consists of 4 short subquestions. Each subquestion counts for 2 points.

𝑥 2 +𝑥
a. Find all solutions of the equation ln ( ) = 0. (exact or text)
2𝑥
𝑑𝑦
b. Given is 𝑥 2 + 2 = 𝑦 3 + 3. Find an expression for 𝑑𝑥.
𝑥 −𝑏
c. Simplify the following expression: 𝑥 𝑏 𝑥 2𝑏 3𝑏 𝑥 2𝑏 .
𝑥
2 1
d. Given is matrix 𝐀 = ( ). Calculate (𝐈 − 𝐀′ ), i.e. the identity matrix minus the
−2 3
transpose of 𝐀.

2. Web-advertising will become more important than advertising on TV. A marketing model
teaches us that net benefits 𝐵 (benefit minus cost) of advertising are

𝐵(𝑊, 𝑇) = 1000𝑊 + 800𝑇 − 2𝑊 2 − 𝑇 2 − 2𝑊𝑇

where expenditure on web-advertising is given by 𝑊 ≥ 0 and expenditure on advertising on

TV by 𝑇 ≥ 0.

a. Find the coordinates of all extreme points of 𝐵(𝑊, 𝑇), and determine the nature of these
extreme points. (10 points)
b. There is a budget constraint 𝑇 + 𝑊 = 300. Use Lagrange’s method to find the optimal
value(s) for 𝑇, 𝑊 and 𝐵 where 𝐵 is maximized. Explain why these values indeed yield a
maximum. (9 points)
c. A new anti-monopoly law prescribes that expenditures per channel (internet, TV, etc)
may not exceed 120, and that the budget for TV ads may not exceed twice the budget
for internet ads. Write down the mathematical programming problem that captures all
information (so, including the information provided in entire Question 2 up to here). Do
not solve the mathematical programming problem. (6 points)

3. Translate the following sentences

in the language of propositional logic:
a. If the interest rates go up, the house market will go down and many people will be
unable to pay their mortgage. (2 points)
b. Unless new evidence in the Russia inquiry shows up, Donald Trump will not be
impeached and will stay in office. (2 points).

in the language of predicate logic:

c. Microsoft acquired LinkedIn, but didn’t acquire Google. (2 points)
d. No candidate has campaigned in Oregon. (2 points).
e. Some politicians aren’t respected by any of their voters. (2 points)
4. Determine by means of truth tables

a. whether the following expression is a logical truth, a contradiction, or neither:

(p ↔ q) ∨ (p → ( ¬ r  q)) (5 points)

b. whether the following argument is valid:

p → (q → r), r → p / p → q (5 points)

5. Prove by means of natural deduction:

a. p → q, r → (p  ¬t), q → t ├ ¬r (6 points)
b. p → r, r → (q ∨ s), q → ¬p, s → t├ p → t (7 points)

6. Consider the following decision matrix D where you can choose between acts a, b and c, and
the monetary outcomes depend on which state occurs:

State State A State B State C

Act
Act a 5 10 50
Act b 10 15 30
Act c 10 20 20

a. Which act should be chosen according to the Leximin criterion? (3 points)

b. Which act should be chosen according to the Principle of Insufficient Reason? (3 points)

Suppose that State A occurs with probability zero, State B occurs with (unkown) probability p, and
thus State C occurs with probability 1-p. Suppose that the agent is risk neutral.

c. For what value of p is the agent indifferent between ‘Act a’ (a lottery of receiving 10 with
probability p, and receiving 50 with probability 1-p) and ‘Act b’ (a lottery of receiving 15
with probability p, and receiving 30 with probability 1-p)? (3 points)
d. For the probability you computed in c., can you say something about the preference
between ‘Act a’ and ‘Act c’ if the agent is risk averse? And what if the agent is risk loving?
(3 points)
7. Consider the following normal form game:

Player Col C1 C2
Player Row
R1 (2,0) (4,1)
R2 (1,1) (8,a)

a. For which value of a does this game have a strictly dominant strategy? (2 points)
b. Suppose that 𝑎 = 0. Calculate the unique (mixed) Nash equilibrium of this game (10
points).
(Hint: Suppose that the player Row plays R1 with probability 𝑝 ∈ [0,1] (and thus plays R2
with probability 1 − 𝑝), and player Col plays C1 with probability 𝑞 ∈ [0,1] (and thus plays
C2 with probability 1 − 𝑞). First, show that the expected payoff for player Row is
𝑢1 (𝑝, 𝑞) = 5𝑝𝑞 − 4𝑝 − 7𝑞 + 8, and the expected payoff for player Col is 𝑢2 (𝑝, 𝑞) =
−2𝑝𝑞 + 𝑝 + 𝑞. From this, find the mixed Nash equilibrium.)

8. Consider the following preference profile on the set of three agents 𝑁 = {1,2,3} and four
alternatives 𝐴 = {𝑎, 𝑏, 𝑐, 𝑑}.

Agent 1: 𝑐≻b≻d≻a
Agent 2: 𝑏≻c≻d≻a
Agent 3: a≻b≻c≻d

a. What alternative will be chosen for the society according to the Borda social choice
function? (5 points)
b. Argue that the Borda social welfare function satisfies the Ordering axiom. Show by
example that the Condorcet social welfare function does not satisfy the Ordering axiom. (5
points)
 2. METHODS OF PPE I: LOGIC, MATHEMATICS AND DECISIONS: ANSWERS

1.a . 𝑥 = 1

because
𝑥 2 +𝑥 𝑥 2 +𝑥 𝑥(𝑥+1) 𝑥+1
ln ( 2𝑥
) =0⇒ 2𝑥
=1⇒ 2𝑥
=1⇒ 2
= 1 ⇒ 𝑥 + 1 = 2 ⇒ 𝑥 = 1.
2
2𝑥 2
b. . 3𝑦2 or 3 𝑥(𝑥 2 − 1)−3

because
𝑑 𝑑 𝑑𝑦 𝑑𝑦 2𝑥
𝑥 2 + 2 = 𝑦 3 + 3. Therefore, 𝑑𝑥 (𝑥 2 + 2) = 𝑑𝑥 (𝑦 3 + 3) ⇒ 2𝑥 = 3𝑦 2 𝑑𝑥 ⇒ 𝑑𝑥 = 3𝑦2.
2
𝑑𝑦 𝑑 2
Alternatively, you may rewrite 𝑦 = √𝑥 2 − 1, so 𝑑𝑥 = 𝑑𝑥 (√𝑥 2 − 1) = 3 𝑥(𝑥 2 − 1)−3 . These
3 3

two forms are equivalent.

c. 𝑥 𝑏 because
𝑥 −𝑏
𝑥 𝑏 𝑥 2𝑏 𝑥 3𝑏 𝑥 2𝑏 = 𝑥 (𝑏+2𝑏−𝑏−3𝑏+2𝑏) = 𝑥 𝑏

−1 −1
a. (𝐈 − 𝐀′ ) = ( ).
2 −2

Question 2.

(a) We seek to find extreme points of 𝐵(𝑊, 𝑇) = 1000𝑊 + 800𝑇 − 2𝑊 2 − 𝑇 2 − 2𝑊𝑇.

𝜕𝐵
𝜕𝑊
= 1000 − 4𝑊 − 2𝑇 = 0
{ 𝜕𝐵 ⇒ 200 − 2𝑊 = 0 ⇒ 𝑊 = 100. As a consequence 𝑇 = 300.
𝜕𝑇
= 800 − 2𝑇 − 2𝑊 = 0

So (𝑊, 𝑇) = (100,300) is the only stationary point.

𝜕2 𝐵 𝜕2 𝐵 𝜕2 𝐵
To find the nature of this stationary point, examine 𝜕𝑊 2 = −4, 𝜕𝑇 2 = −2 and 𝜕𝑊𝜕𝑇 = −2, so
2
𝜕2 𝐵 𝜕2 𝐵 𝜕2 𝐵
𝜕𝑊 2 𝜕𝑇 2
− (𝜕𝑊𝜕𝑇) = 8 − 4 = 4 > 0. Therefore, the stationary point is an extreme value.
𝜕2 𝐵 𝜕2 𝐵
More specifically, it is a maximum because 𝜕𝑊 2 = −4 < 0 (or equivalently, because 𝜕𝑇 2 =
−2 < 0).
 maximize 𝐵 = 1000𝑊 + 800𝑇 − 2𝑊 2 − 𝑇 2 − 2𝑊𝑇
(b) Now we analyze { .
subject to 𝑇 + 𝑊 = 300

Define the Lagrangian ℒ(𝑊, 𝑇, 𝜆) = 1000𝑊 + 800𝑇 − 2𝑊 2 − 𝑇 2 − 2𝑊𝑇 − 𝜆(𝑇 + 𝑊 −

300).
𝜕ℒ
𝜕𝑊
= 1000 − 4𝑊 − 2𝑇 − 𝜆 = 0
𝜕ℒ
Stationary points occur when simultaneously = 800 − 2𝑇 − 2𝑊 − 𝜆 = 0 .
𝜕𝑇
𝜕ℒ
{ 𝜕𝜆
= 𝑇 + 𝑊 − 300 = 0

So 1000 − 4𝑊 − 2𝑇 = 800 − 2𝑇 − 2𝑊, implying 200 = 2𝑊, so 𝑊 = 𝑊0 = 100 and 𝑇 =

𝑇0 = 200. At this point, 𝐵 = 𝐵0 = 100000 + 160000 − 20000 − 40000 − 40000 =
160000.

To find out the nature of the stationary point, try two other points on the constraint line, at
opposite positions compared to the stationary point (𝑊0 , 𝑇0 ), e.g. (𝑊1 , 𝑇1 ) = (300,0) and
(𝑊2 , 𝑇2 ) = (0,300). At the first point, 𝐵1 = 300000 − 180000 = 120000, at the second
point, 𝐵2 = 2400000 − 90000 = 150000. Because the constraint is a continuous curve (it is
a straight line) and we have 𝐵1 < 𝐵0 and 𝐵2 < 𝐵0 , the stationary point at (𝑊0 , 𝑇0 ) is a
maximum.

maximize 𝐵 = 1000𝑊 + 800𝑇 − 2𝑊 2 − 𝑇 2 − 2𝑊𝑇

(c) In addition to the previous { , and the
subject to 𝑇 + 𝑊 = 300
previous 𝑊 ≥ 0 and 𝑇 ≥ 0, we have additional constrains: 𝑊 ≤ 120, 𝑇 ≤ 120 and 𝑇 ≤ 2𝑊.
So, the full program is given by

maximize 𝐵 = 1000𝑊 + 800𝑇 − 2𝑊 2 − 𝑇 2 − 2𝑊𝑇

subject to 𝑇 + 𝑊 = 300
and 0 ≤ 𝑊 ≤ 120
and0 ≤ 𝑇 ≤ 120
{and 𝑇 ≤ 2𝑊
Note: the constraint 𝑇 + 𝑊 = 300 is incompatible with the other constraints, under which

𝑇 + 𝑊 ≤ 180. In case you observed this: bravo!

3.
a. (p → (q ∧ r))
(p: Interest rates go up; q: the house market will go down; r: many people
will be unable to pay the mortgage)
 b. (¬p → (¬q ∧ r))
(p: new evidence in the Russia inquiry turns up; q: Donald Trump is
impeached; r: Donald Trump stays in office)
c. Aml ∧ ¬ Amg
(m: Microsoft; l: LinkedIn; g: Google; A: … acquired …)
d. x (Cx → ¬Pxa)
(a: Oregon; C: … is a candidate; P: … campaigned in …)
e. x (Px ∧ y (Vyx → ¬Ryx))
(P: … is a politician; Vxy: … is a voter of …; R: … respects … )

4. a. contingency; false in the (two) cases p is true and q is false

b. valid

5. Any correct proof

6.
a. min(𝑎) = min(5, 10, 50) = 5, min(𝑏) = min(10, 15, 30) = 10, min(𝑐) =
min(10, 20, 20) = 10.
So, it is either Act b or Act c.
Act b: min(15, 30)=15. Act c: min(20,20)=20. So, according to the Leximin criterion
choose Act c.
b. Act a: 1/3 (5+10+50)=65/3. Act b: 1/3 (10+15+30)=55/3. Act c: 1/3 (10+20+20)=50/3. So,
according to the Principle of Insufficient Reason, choose act a.
20
c. 10𝑝 + 50(1 − 𝑝) = 15𝑝 + 30(1 − 𝑝) ⇔ −40𝑝 + 50 = −15𝑝 + 30 ⇔ 𝑝 = = 4/5.
25
4 1
d. EMV of Acts a and b at 𝑝 = 4/5 is 10 (5) + 50 (5) = 90/5=18. Act c gives 20 for sure. If
the agent is risk averse, he/she definitely prefers act c with the higher EMV. If the agent
is risk loving, we cannot say anything about his/her preference without further
information about his/her risk attitude. (3 points)

7. a. . The game has a strictly dominant strategy if 𝑎 > 1.

b. Expected payoff player Row is 𝑢1 (𝑝, 𝑞) = 2𝑝𝑞 + 4𝑝(1 − 𝑞) + (1 − 𝑝)𝑞 + 8(1 − 𝑝)(1 −
𝑞) = 5𝑝𝑞 + 8 − 4𝑝 − 7𝑞. Then R2 (𝑝 = 0) is a best response if 𝑢1 (0, 𝑞) ≥ 𝑢1 (1, 𝑞) ⇔
8−7𝑞 ≥ 5𝑞 − 4 + 8 − 7𝑞 ⇔ 𝑞 ≤ 4/5. Similar, 𝑅1 (𝑝 = 1) is a best response if 𝑞 ≥ 4/5.
Finally, any 𝑝 ∈ [0,1] is a best response if and only if 𝑞 = 4/5.
Similar, for player Col: Expected payoff player Col is 𝑢2 (𝑝, 𝑞) = 𝑝(1 − 𝑞) + (1 − 𝑝)𝑞 =
−2𝑝𝑞 + 𝑝 + 𝑞. Then 𝐶2 (𝑞 = 0) is a best response if 𝑢2 (𝑝, 0) ≥ 𝑢2 (𝑝, 1) ⇔ 𝑝 ≥ −2𝑝 +
1
𝑝 + 1 ⇔ 𝑝 ≥ 2. Similar, 𝐶1 (𝑞 = 1) is a best response if 𝑝 ≤ 1/2. Finally, any 𝑞 ∈ [0,1] is a
best response if and only if 𝑝 = 1/2.
1 4
Then the Nash equilibrium is 𝑝 = 2, 𝑞 = 5.
(You can also find the mixed Nash equilibrium by partial differentiation.)
8. a. The borda scores of the individual agents are 𝑏𝑜𝑟𝑑𝑎(≻1 ) = (0,2,3,1), 𝑏𝑜𝑟𝑑𝑎(≻2 ) =
(0,3,2,1) and 𝑏𝑜𝑟𝑑𝑎(≻3 ) = (3,2,1,0). Then the total Borda scores are 𝐵𝑜𝑟𝑑𝑎(𝐺) = (3,7,6,2), and
the Borda winner is 𝑏.

b. Since the Borda social welfare function orders the alternatives according to their Borda scores, it
holds that 𝑎 ≽ 𝑏 𝑎𝑛𝑑 𝑏 ≽ 𝑐 ⇒ 𝐵𝑜𝑟𝑑𝑎𝑎 (𝐺) ≥ 𝐵𝑜𝑟𝑑𝑎𝑏 (𝐺) ≥ 𝐵𝑜𝑟𝑑𝑎𝑐 (𝐺) ⇒ 𝑎 ≽ 𝑐 .
The Condorcet social welfare function not satisfying Ordering can be seen from the profile
Agent 1: 𝑎≻b≻c
Agent 2: 𝑏≻c≻a
Agent 3: c≻a≻b