Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 5.A, Problem 2ARQ
To determine
The optimal size of project from the economic perspective.
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Suppose there are only five people in a society and each favors one of the five highway construction options in Table 16.2 (include no highway construction as one of the options). Explain which of these highway options will be selected using a majority paired-choice vote. Will this option be the optimal size of the project from an economic perspective?
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
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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)…
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- 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.arrow_forwardSituation 1 Suppose you have won $1000 on a game show. In addition to these winnings, youare now asked to choose between Option A: 50% chance of winning $1000 and 50% chance of winning nothing Option B: winning $500 for sure. Situation 2 Suppose you have won $2000 on a game show. In addition to these winnings, youare noW asked to choose between Option C: 50% chance of losing $1000 and 50% chance of losing nothing Option D: losing $500 for sure. They found that respondents are much more likely to choose Option B in the first case and Option C in the second case. Suppose the respondents are not indifferent between options. Show that their choices are inconsistent with the Expected Utility Theory.arrow_forwardKayla and Kevin are friends who go together to a used textbook seller who has two copies ofthe biology book that they both need for their class this semester. The cost to the seller ofacquiring the books was $25 each and no other students will need this book. Kayla states thatshe is willing to pay $40 for the book, while Kevin says he is willing to pay $80. Which ofthe following describes the most likely conclusion to this scenario? Group of answer choices The seller will sell the books to both Kayla and Kevin for $40 each because if they tried tocharge Kevin a higher price, Kayla would engage in arbitrage. The seller will sell one book to Kayla for $40 and one book to Kevin for $80 because thismarket meets all three requirements for price discrimination. The seller will sell the books to both Kayla and Kevin for $80 each because Kevin's highervalue exceeds Kayla's willingness to pay. The seller will sell the books to both Kayla and Kevin for $25 each because that is howmuch the…arrow_forward
- There are two players, 1 and 2. At the first stage, player 1 chooses whether to play the following simultaneous move game: LR U 2,2 0,0 D 0,0 4,4 If player 1 chooses "play" at the first stage, player 1 and 2 play the above simultaneous move game; If player 1 choose "not play" at the first stage, both players get the payoff of 3. How many SPE does the game have? O 1 O 3 O 4arrow_forward2. Individual Problems 15-2 Mr. and Mrs. Ward typically vote oppositely in elections and so their votes "cancel each other out." They each gain 20 units of utility from a vote for their positions (and lose 20 units of utility from a vote against their positions). However, the bother of actually voting costs each 10 units of utility. The following matrix summarizes the strategies for both Mr. Ward and Mrs. Ward. Mr. Ward Vote Vote Mr. Ward: -10, Mrs. Ward: -10 Don't Vote Mr. Ward: -20, Mrs. Ward: 10 The Nash equilibrium for this game is for Mr. Ward to payoff of O True Mrs. Ward O False Don't Vote Mr. Ward: 10, Mrs. Ward: -20 Mr. Ward: 0, Mrs. Ward: 0 units of utility and Mrs. Ward receives a payoff of Suppose Mr. and Mrs. Ward agreed not to vote in tomorrow's election. This agreement not to vote True or False: This agreement would increase utility for each spouse, compared to the Nash equilibrium from the previous part of the question. and for Mrs. Ward to units of utility. a Nash…arrow_forward3 2 - 2 0 - 3 3 If A = - 3 1 -2 - 2 and AB = C = [C], find C32. B = 4 - 3 0 4 4 4 2 -2 Select the correct choice below and, if necessary, fill in the answer box to complete your choice. O A. C32 = (Simplify your answer.) O B. C32 is not defined because the product AB = C is not defined.arrow_forward
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- Player 1 Cooperate (C) Defect (D) 0 1 O O 1.5 Cooperate (C) 3,3 8,0 3 O 6 Player 2 If the game is repeated finitely many times, what happens in the last period in Nash equilibrium? Both players choose C. Player 1 chooses C, Player 2 chooses D. Player 1 chooses D, Player 2 chooses C. Both players choose D. Defect (D) 0,8 1,1 If the game is repeated infinitely many times, what is the value of 1's future payoffs when both cooperate forever? Assume that the discount factor is 0.5 (i.e. payoffs in the next period are worth half as much as payoffs today).arrow_forwardO 2: 12 O 6; 5 O 3:6 Support O 10; 4 (2, 12) Agree BO Disagree Not Support (6,5) (3,6) Co Not In this extensive form game between player A and B, in the subgame perfect NE, player A gets and B gets. (10,4)arrow_forward8. Two states, A and B, have signed an arms-control agreement. This agreementcommits them to refrain from building certain types of weapons. The agreement is supposed tohold for an indefinite length of time. However, A and B remain potential enemies who wouldprefer to be able to cheat and build more weapons than the other. The payoff table for A (player1, the row player) and B (player 2, the column player) in each period after signing thisagreement is below. a) First assume that each state uses Tit-for-Tat (TFT) as a strategy in this repeated game.The rate of return is r. For what values of r would it be worth it for player A to cheat bybuilding additional weapons just once against TFT? b) For what values of r would it be worth deviating from the agreement forever to buildweapons? c) Convert both values you found in parts a and b to the equivalent discount factor dusing the formula given in lecture and section. d) Use the answers you find to discuss the relationship between d and r:…arrow_forward
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