Two neighboring countries, i= 1,2, simultaneously choose how many resources (in hours) to spend in recycling activities, r. The average benefit (m) for every dollar spent on recycling is: (n.) = 10- +²: and the (opportunity) cost per hour for each country is 4. Country i's average benefit is increasing in the resources that neighboring country / spends on his recycling because a clean environment roduces positive external effects on other countries. A. Find each country's best-response function, and compute the Nash Equilibrium (NE). (ri.ri). B Graph the best-response functions and indicate the pure strategy Nash Equilibrium on the graph. C On your previous figure, show how the equilibrium would change if the intercept of one of the countries' average benefit functions fell from 10 to some smaller number.
Two neighboring countries, i= 1,2, simultaneously choose how many resources (in hours) to spend in recycling activities, r. The average benefit (m) for every dollar spent on recycling is: (n.) = 10- +²: and the (opportunity) cost per hour for each country is 4. Country i's average benefit is increasing in the resources that neighboring country / spends on his recycling because a clean environment roduces positive external effects on other countries. A. Find each country's best-response function, and compute the Nash Equilibrium (NE). (ri.ri). B Graph the best-response functions and indicate the pure strategy Nash Equilibrium on the graph. C On your previous figure, show how the equilibrium would change if the intercept of one of the countries' average benefit functions fell from 10 to some smaller number.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Two neighboring countries, i = 1,2, simultaneously choose how many resources (in hours) to spend
in recycling activities, n. The average benefit (n) for every dollar spent on recycling is:
7(n.n) = 10 -r +:
and the (opportunity) cost per hour for each country is 4. Country i's average benefit is increasing in
the resources that neighboring country i spends on his recycling because a clean environment
produces positive external effects on other countries.
A. Find each country's best-response function, and compute the Nash Equilibrium (NE), (ri.ri).
B. Graph the best-response functions and indicate the pure strategy Nash Equilibrium on the
graph.
C On your previous figure, show how the equilibrium would change if the intercept of one of
the countries' average benefit functions fell from 10 to some smaller number.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9abc8e78-57cd-4d48-81fa-93f57991049c%2F9d50605e-d699-4741-a76d-96edb0f67457%2Fdsuin8l_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Two neighboring countries, i = 1,2, simultaneously choose how many resources (in hours) to spend
in recycling activities, n. The average benefit (n) for every dollar spent on recycling is:
7(n.n) = 10 -r +:
and the (opportunity) cost per hour for each country is 4. Country i's average benefit is increasing in
the resources that neighboring country i spends on his recycling because a clean environment
produces positive external effects on other countries.
A. Find each country's best-response function, and compute the Nash Equilibrium (NE), (ri.ri).
B. Graph the best-response functions and indicate the pure strategy Nash Equilibrium on the
graph.
C On your previous figure, show how the equilibrium would change if the intercept of one of
the countries' average benefit functions fell from 10 to some smaller number.
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