Adam and Catherine are choosing between two ice cream shops, Icy and Frosty, located at either end of a 1-mile-long beach. Adam is standing in front of Icy, while Catherine is standing in front of Frosty. Both Adam and Catherine are each willing to pay, at most, $6 for one ice cream cone. It costs them $1 to walk the 1-mile distance between the shops. Icy is government- run, so the price is fixed at exactly $4/cone and will not change. The shops face costs of $o.25/cone. What price should Frosty charge if it is to maximize its total profits from Adam and Catherine?

None

6,7

Don't use Ai

Consider the following decision by two countries: a small country (C1) and a large country (C2). When both countries cooprate and agree to an environmental agreement, C1 receives 4 and C2 receives 5 units of benefit. When they do not cooperae, they incur costs of -1, and -2, respectively. The payoffs associated with other outcomes are described in the table below. Large country (C2) Agree to environmental protection (cooperate) Do not agree to environmental protection (do not cooperate) The Socially Optiomal outcome is The Nash Equilibrium is Agree to environmental protection (cooperate) C1:4 C2: 5 C1: 2 C2: 6 [Choose ] Small country (C1) [Choose ] Do not agree to environmental protection (do not cooperate) C1:2 C2: -3 C1: -1 C2: -2

THE PRISONERS' DILEMMA Consider the following simple model of a cocktail party. Alice and Bob are carrying on separate conversations at the party. Alice speaks at volume a and Bob speaks at volume b. The communication benefit to Alice is al(a + b) and the benefit to Bob is b/(a + b). The vocal-strain cost to Alice is ca and the cost to Bob is cb, where c is a parameter. Suppose that the players have two choices: speaking softly at volume 1, or speaking loudly at volume 4. This leads to the following game in strategic form, with Alice choosing the row and Bob choosing the column. a = 1 a = 4 b = 1 0.5-c, 0.5-c 0.8-4c, 0.2-c 0.0400 0.0500 0.0750 0.0800 0.1500 b = 4 0.2 c, 0.8-4c - 0.54c, 0.5-4c For which of the following values of c is this game a prisoners' dilemma? (Mark all values for which this is true.)

The author describes the case of the "Prisoner's Dilemma" to demonstrate which of the following?   Competition and the pursuit of unfettered self-interest result in greater efficiency, and benefits everyone involved equally.     Effective policy can place incentives in such a manner that the very pursuit of unfettered self-interest of the prisoners results in the desired outcome of getting both to confess to the crime.     Just as in the case of the prisoner's dilemma, the pursuit of unfettered self-interest will cause the fishermen who fish Atlantic swordfish (a common resource) to harvest them wisely and limit the number of fish each fisherman catches. Thus the fishermen's ability to pursue unfettered self-interest will allow the population of swordfish to remain stable and even grow. The fishermen trust each other to behave responsibly and in the interest of the common good.

1) Which is the Nash equilibrium if Boeing produces and why ?     2) Suppose home is a small exporter of wheat. At the price of $100 per ton, home growers exports 20 tons. Now Suppose the home government decides to support its domestic producer with an export subsidy of $40 per ton. Use the following figure to answer these questions.     2) Suppose home is a small exporter of wheat. At the price of $100 per ton, home growers exports 20 tons. Now Suppose the home government decides to support its domestic producer with an export subsidy of $40 per ton. Use the following figure to answer these questions.     2) Suppose home is a small exporter of wheat. At the price of $100 per ton, home growers exports 20 tons. Now Suppose the home government decides to support its domestic producer with an export subsidy of $40 per ton. Use the following figure to answer these questions.     a) What is the quantity exported under free trade and with the export subsidy? b) Calculate the effect…

Two individuals A and B have utility functions defined over two goods, a private good 'x') and a public good, 'F. The utility function of an agent 'i' is defined by ui = 2 log xi + log F where F =FA + FB. Each agent has 200 units of private goods x, as his endowment and 1 unit of private good can be transformed into 1 public good F. Answer the following (a) Find the Nash equilibrium values of FA and FB? (b) What is the Pareto optimal level of F? (c) In what condition the Pareto optimal level of F will not depend on the number of private goods? (d) What would be the consumption of x by each agent if they contribute equally towards the public good (F)? (e) Would it change if an agent had a larger endowment of x to begin with?

Anna and Bob are the only residents of a small town. The town currently funds its fire department solely from the individual contributions of these two residents. Each of the two residents has a utility function over private goods x and total number of firemen M, of the form: u(x, M) M = M4 + M². Ann and Bob both have income of 200 each, and the price of both the private good and a fireman is 1. They are limited to = 2 In x + In M. The total provision of firemen hired, M, is the sum of the number hired by each of the two persons: providing between 0 and 200 firemen. For the purposes of this problem, you can treat the number of firemen as a continuous variable (it could be man-years). How many firemen are hired if the government does not intervene?