Suppose that Russia and Australia (the two biggest producers of diamonds) make anagreement to both keep the production of diamonds low in order to keep the price high.After reaching this agreement, each country must decide whether to follow theagreement. Suppose that they are faced with the following decision:Russia'sDecisionHighProductionAustralia's DecisionHigh Production($40 b, $40 b)Low Production($60 b, $30 b)Low Production ($30 b, $60 b)where cells contain (Russia's profit, Australia's profit).a. If the game is played only one time, characterize each country's best strategy.($50 b, $50 b)b. What is the Nash equilibrium? Is the Nash equilibrium pareto efficient? Brieflyexplain why or why not.c. If this were an infinitely repeated game, what outcome would you expect toemerge as the equilibrium? Briefly explain.

The diamond industry is one of the most lucrative industries in the world, and it is dominated by a…

Suppose that Russia and Australia (the two biggest producers of diamonds) make an agreement to both keep the production of diamonds low in order to keep the price high. After reaching this agreement, each country must decide whether to follow the agreement. Suppose that they are faced with the following decision: Russia's Decision High Production Australia's Decision Low Production ($60 b, $30 b) High Production ($40 b, $40 b) Low Production ($30 b, $60 b) where cells contain (Russia's profit, Australia's profit). a. If the game is played only one time, characterize each country's best strategy. ($50 b, $50 b) b. What is the Nash equilibrium? Is the Nash equilibrium pareto efficient? Briefly explain why or why not. c. If this were an infinitely repeated game, what outcome would you expect to emerge as the equilibrium? Briefly explain.

Suppose that Russia and Australia (the two biggest producers of diamonds) make an agreement to both keep the production of diamonds low in order to keep the price high. After reaching this agreement, each country must decide whether to follow the agreement. Suppose that they are faced with the following decision: Russia's Decision High Production Australia's Decision Low Production ($60 b, $30 b) High Production ($40 b, $40 b) Low Production ($30 b, $60 b) where cells contain (Russia's profit, Australia's profit). a. If the game is played only one time, characterize each country's best strategy. ($50 b, $50 b) b. What is the Nash equilibrium? Is the Nash equilibrium pareto efficient? Briefly explain why or why not. c. If this were an infinitely repeated game, what outcome would you expect to emerge as the equilibrium? Briefly explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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