The optimal size of project from the economic perspective.

Question

Want to see the full answer?

Answer 1

Question

Chapter 5.A, Problem 2ARQ

To determine

The optimal size of project from the economic perspective.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Newfoundland’s fishing industry has recently declined sharply due to overfish- ing, even though fishing companies were supposedly bound by a quota agree- ment. If all fishermen had abided by the agreement, yields could have been maintained at high levels. LO4 Model this situation as a prisoner’s dilemma in which the players are Company A and Company B and the strategies are to keep the quota and break the quota. Include appropriate payoffs in the matrix. Explain why overfishing is inevitable in the absence of effective enforcement of the quota agreement. Provide another environmental example of a prisoner’s dilemma. In many potential prisoner’s dilemmas, a way out of the dilemma for a would-be cooperator is to make reliable character judgments about the trustworthiness of potential partners. Explain why this solution is not avail- able in many situations involving degradation of the environment.

5. Consider a game where two voters decide on who to elect to a given office between two candidates. The economy can be in two states that we will call A and B; both voters agree that candidate 1 is the best if the state is A but candidate 2 is more suitable if the state is B. Assume that both voters' preferences are represented by the Bernouilli utility function that gives payoff 1 if the right candidate is elected for the realized state and 0 otherwise; if the candidates tie, each is selected with probability 1/2 so that expected payoff then is 1/2. Voter 1 is informed of the state of the economy while voter 2 is not. Voter 2 believes that the state is A with probability .9. Each voter has the option to vote for candidate 1, for candidate 2, or to not vote. (a) Formulate this situation as a Bayesian game. (b) Show that the game has exactly two pure strategy bayesian Nash equilibria, in one of which voter 2 does not vote and in the other of which they always vote for candidate 1. (c)…

4. Consider a three-player bargaining, where the players are negotiating over a surplus of one unit of utility. The game begins with player 1 proposing a three-way split of the surplus. Then player 2 must decide whether to accept the proposal or to substitute for player 1's proposal his own alternative proposal. Finally, player 3 must decide whether to accept or reject current proposal (it is player 1's if player 2 accepts or player 2's if player 2 offer a new one). If he accepts, then the players obtain the specified shares of the surplus. If player 3 rejects, then the players each get 0. (a) Draw the extensive form game of this perfect-information game. (b) Determine the subgame perfect NE.