Foundations of Economics (8th Edition)
Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 1, Problem 5SPPA
To determine

To explain:

The components of marginal cost and marginal benefit to be faced by the producer of a movie.

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3 - Suppose that in each of two periods, society must decide whether to protest the policies of the state. When society protests, the state may either acquiesce or repress. Society gets 1 if the state acquiesces, -1 if the state represses, and 0 if it does not protest. Suppose there are two types of states: Moderate and Hardline. The moderate state (M) gets 0 if the protest does not take place, -2 if it acquiesces, and -3 if it represses. The hardline (H) state gets 0 for no protest, -2 for repression, and -3 for acquiescing. Let p0 be the prior probability the state is M. Let p1 be society’s updated belief that the state is M, after observing the actions in period 1. (a)  Draw the game in extensive form specifying who moves when, the set of actions available at each node and the final payoffs for both players (clearly denote information sets). (b)  Is there an equilibrium where the M-state always acquiesces when there is a protest, the H-state always represses when there is a…
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