. If the decision maker knows nothing about the probabilities of the four states of nature, what is the recommended decision using: i. the optimistic approach ii. the conservative approach iii. the minimax regret approach
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a. If the decision maker knows nothing about the probabilities of the four
states of nature, what is the recommended decision using:
i. the optimistic approach
ii. the conservative approach
iii. the minimax regret approach
iv. the Laplace method
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- 4. A model of network externalities. Suppose that there are 50 potential consumers in the market for a new technology that exhibits network effects. There is a uniform distribution of consumers with individual valuations, v, ranging from S1, $2,.., S50. Consumer valuation from consuming the technology is given by vN, where N is the number of consumers adopting the technology. Consumers with purchase the product as long as their valuation is greater or equal to the price, so that the marginal consumer has a valuation such that p3vN. The number of consumers adopting the technology is given by the number of people with valuation greater than y, i.e. N = 50 - v. %3D a) Using the information above, derive the relationship between the price of the product and the number of consumers adopting the product, N. Characterize this relationship – does it reflect a typical market demand curve? b) If the price for the product is $600, find the three equilibrium number of adopters in the market. c)…Please no written by hand solution A local KFC franchisee is evaluating the number of fried chickens to produce each day. The following table shows the 4 alternatives, the states of nature and their payoffs Daily Supply 40 50 60 70 Daily Demand 40 $80 $0 -$80 -$160 50 $80 $100 $20 -$60 60 $80 $100 $120 $40 70 $80 $100 $120 $140 What would your decision be if the following rules are applied? (show your calculation) Maximax Maximin La Place Minimax-regretThere are two firms, each having the option of polluting during production or cleaning up its production process such that it doesn't pollute. Of course, polluting is cheaper than not polluting. The payoffs for each of the choice combinations are shown in the decision matrix below. Firm B Pollute Don't Pollute $75,000 $25.000 $75,000 $10,000 $10,000 $25,000 $25.000 What kind of commitment strategy could keep these firms from polluting? Instructions: In order to receive full credit, you must make a selection for each option. For correct answer(s), click the option once to place a check mark. For incorrect answer(s), click the option twice to empty the box. The environmental protection agency conducts a study on the dangers of pollution ? The government recommends that the companies not pollute. 7 The government makes pollution illegal and charges a company a $10,000 fine if it is caught polluting. 7 The companies agree not to pollute. The government makes pollution illegal and charges a…
- 34. Which one would have the greatest effectConsider a small town with two competing restaurants: Doug’s Diner and Betty’s Bistro. There is 1000profit to be made in the market. Each period, the restaurants simultaneously decide whether to offer high orlow quality food. In order to offer high quality food, each restaurant must hire an expert chef, which incursan additional cost of 100. The restaurants split the profit equally if they offer the same quality of food. Ifone restaurant offers high quality food while the other offers low quality food, the high quality restauranttakes four fifths of the profit and the low quality restaurant takes one fifth of the profit.(a) Draw up the normal form game matrix, showing the players, strategies, and payoffs.(b) Determine the Nash equilibrium of this game.(c) Explain how the restaurant owners could both be better off than in the Nash equilibrium if they wereable to cooperate. Is the town as a whole better off or worse off when the firms cooperate? Why or whynot?you and a friend decide to run a three mile race. If you agree to run together, you keep up with himfor the first mile, but you overexert yourself and run the last two miles at slower paces on your own. Tomake up for lost time, your friend runs the last two miles at a faster pace. Your mile times are 6:30, 7:00,and 7:30. Your friend’s times are 6:30, 6:00, and 6:00. If you both agree to run on your own, you run aconstant pace of 7:05 while your friend runs at a constant pace of 6:05. If you want to run together butyour friend wants to run solo, he runs his constant pace of 6:05. You, on the other hand, want to showhim that you can run faster, but you end up overexerting yourself after the first mile. You run times of6:20, 7:05, and 7:30. If he wants to run together but you do not, you both run at your pace of 7:05. Thissituation can be turned into an economic game, with the payoffs the overall race times. You each wantto run the fastest time you possibly can.(a) Who are the players in…
- Chemical Firm 1 Ton Pollution Pollution Shut 2 Tons 15 20 Down 15 20 Operate 25 10 2. The above figure shows the payoff matrix for two firms. A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake. A private beach on the lake must decide whether to operate or not. Increased pollution reduces the number of people who wish to visit the beach. a) Determine the Nash equilibrium without property rights. b) If the chemical firm owns the lake and the beach owner must pay the chemical firm $10 to produce only one ton of pollution, what is the outcome? c) If the beach owner owns the lake and the chemical firm must pay $10 per ton of pollution, what is the outcome? d) Compare results of part a, b, and c. BeachA4 1. Two chemical companies, A and B, operate in a small New England town. Every week A releases 40 gallons of dioxin into the town’s aquifer, while B releases 30 gallons during the same time frame. It would cost A $800 per gallon to clean up its production, while B can clean up its waste at a cost of $500 per gallon. After this issue is raised at a town hall meeting, the town’s residents vote to reduce total dioxin pollution to 20 gallons per week. a. What would be the total cost of pollution reduction if each company were limited to 10 gallons of waste per week? b. What would the total costs be if each company received 10 gallons worth of tradable pollution credits? 2. A wheat farmer and a cattle rancher occupy adjacent parcels of land. Every year the farmer builds a fence to keep the cattle out of his field, and every year the rancher tears the fence down so that the cattle can roam free. The farmer values the wheat that gets destroyed at $300, while the rancher values having a…4) A new vaccine against deadly disease has just been discovered. Presently, 55 people die from the disease each year. The new vaccine will save lives, but it is not completely safe. Some recipients of the shots will die from adverse reactions. The projected effects of the inoculation are given in the accompanying table: % of population Total deaths Total deaths Marginal benefit of Marginal cost of inoculation inoculated due to disease due to inoculation inoculation 55 10 45 20 36 30 28 3 40 21 6. 50 15 10 60 10 15 70 20 80 3 25 90 30 100 35 Calculate MB and MC of inoculation. What proportion of the population should optimally be inoculated?
- 6. The owner of an antique piece of furniture is looking to sell their good to a known buyer. The seller has a reservation value r whereas the buyer has valuation v > r. Suppose the buyer incurs a one-off transportation cost of t from travelling to the seller to purchase the good. Assume that r, vand t are known to both parties. The game proceeds in two stages: First, the buyer decides whether or not to travel to the seller's location in order to purchase. Second, if they travel then the seller makes a take-it-or-leave-it offer (ultimatum) of price p to the buyer, which the buyer then can either accept or reject. (a) Represent this game in extensive form (b) Find the seller's optimal offer in Stage 2 of this game given that the buyer has already travelled. Is it accepted or rejected? (c) Find a Subgame Perfect Equilibrium of this game. (d) Are there any Nash equilibria which are not subgame perfect? Give an example if one exists. (e) Suppose the seller could offer free delivery at a…Consider “Providing a Public Good under Incomplete Information". (refer to pages 70-74, lecture notes.) If c and cz have the following distribution. 2. 0.5 1.2 C2 0.5 1.2 Prob 1/2 1/2 Prob 1/3 2/3 Find all Bayesian Nash Equilibria of this game. Select all cOTrect amswers. Don't copy Chegg give new answer ASAPBack to Assignment Attempts 2. Individual Problems 14-2 Keep the Highest /2 A local Pilates studio recently began offering a monthly subscription service for its patrons. Suppose a particular patron at this studio has the following willingness-to-pay schedule, per session. Session Willingness to Pay 1st $70 2nd $60 3rd $50 4th $40 5th $30 6th $20 Suppose this consumer would not demand any more sessions, even for free. Also assume that the marginal cost to the studio, per session, is constant at $10. At a price of $55.00 per session, the number of sessions demanded by this consumer would be is $ and producer surplus is 2. At this price and quantity, consumer surplus Suppose the studio has devised a new pricing scheme for consumers who demand more than 1 session. This pricing scheme is a subscription service, whereby consumers can pay a flat fee of $202.50 and can have up to 6 sessions total. Using this subscription pricing model, this consumer would demand producer surplus is S total…