ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Chemical Firm
1 Ton
Pollution Pollution
2 Tons
Shut
15
20
Down
15
20
Оperatel
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.
Beach
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Transcribed Image Text:Chemical Firm 1 Ton Pollution Pollution 2 Tons Shut 15 20 Down 15 20 Оperatel 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. Beach
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