Author Question: Refer to the figure above. What is the profit-maximizing price for the monopolist? A) 3 B) 4 C) ... (Read 44 times)

haleyc112 · **on:** Jun 29, 2018

Refer to the figure above. What is the profit-maximizing price for the monopolist?

A) 3
B) 4
C) 5
D) 6

Question 2

Why is the equilibrium in a trust game socially inefficient?

What will be an ideal response?

Bsand8 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

D

Answer to Question 2

In a trust game, the first mover has to decide whether or not to trust the second mover. If he chooses to trust, the second mover can either cooperate or defect. If he cooperates, both the players will earn a higher payoff than they would have if the first player chose not to trust. If the second player defects, he will earn a higher payoff than the first player. Therefore, the second mover always has an incentive to defect. Given that the second mover is likely to defect, the first mover chooses not to trust. This results in a socially inefficient equilibrium because both the players can improve their payoffs by changing their respective strategies.