This topic contains a solution. Click here to go to the answer

Author Question: The above figure shows a payoff matrix for two firms, A and B, that must choose between a high-price ... (Read 1218 times)

hubes95

  • Hero Member
  • *****
  • Posts: 561


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. 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? If the beach owner owns the lake and the chemical firm must pay $10 per ton of pollution, what is the outcome? Compare this result to the case where nobody owns the lake.


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question

mjenn52

  • Sr. Member
  • ****
  • Posts: 351
If the chemical firm owns the lake, the right column does not change, the cells in the left column change from (15, 0) and (15, 25) to (25, -10) and (25, 15). Producing just 1 ton of pollution is the firm's dominant strategy. The beach will operate, and both enjoy joint profits of 40. If the beach owner owns the lake the cells change to the following: Upper left column becomes (5, 10) and (5, 35). The right column becomes (0, 20) and (0, 30). Producing 1 ton of pollution is a dominant strategy for the firm. The beach operates and they enjoy joint profits of 40. Without property rights, the dominant strategy for the chemical firm is to produce 2 tons of pollution and the beach to operate, for a joint profit of only 30.



 

Did you know?

The average person is easily confused by the terms pharmaceutics and pharmacology, thinking they are one and the same. Whereas pharmaceutics is the science of preparing and dispensing drugs (otherwise known as the science of pharmacy), pharmacology is the study of medications.

Did you know?

Vaccines prevent between 2.5 and 4 million deaths every year.

Did you know?

The highest suicide rate in the United States is among people ages 65 years and older. Almost 15% of people in this age group commit suicide every year.

Did you know?

Less than one of every three adults with high LDL cholesterol has the condition under control. Only 48.1% with the condition are being treated for it.

Did you know?

This year, an estimated 1.4 million Americans will have a new or recurrent heart attack.

For a complete list of videos, visit our video library