Summary 431c. Does the asymmetry in the countries’ sizes cause them to take different
attitudes toward expanding output? Explain why or why not. Comment
on whether or not a prisoner’s dilemma is present.- Two firms dominate the market for surgical sutures and compete
aggressively with respect to research and development. The following
payoff table depicts the profit implications of their different R&D
strategies.
a. Suppose that no communication is possible between the firms; each
must choose its R&D strategy independently of the other. What
actions will the firms take, and what is the outcome?
b. If the firms can communicate before setting their R&D strategies,
what outcome will occur? Explain.
Firm B’s R&D Spending
Low Medium High
Low 8, 11 6, 12 5, 14
Firm A’s R&D Medium 12, 9 8, 10 6, 8
Spending
High 11, 6 10, 8 4, 6Venezuela
3 M barrels 4 M barrels
8 M barrels _____, _____ _____, _____
Saudi Arabia
9 M barrels _____, _____ _____, _____- The neighboring towns of Arlington and Belmont are trying to decide in
which locality to site a new waste incinerator. The towns will share the
benefits of the facility and also share the costs. Each estimates its net
benefit from the incinerator to be $10 million. However, each reckons a
$6 million economic cost (due to lower neighborhood property values,
environmental and safety concerns) from having the incinerator located
in itstown.
a. Construct the payoff table listing the towns’ possible actions and
overall net benefits.
b. Determine the (Nash) equilibrium (or equilibria) of the game. Explain.
c. What arrangement might induce one of the towns to willingly accept
the facility? - Two superpowers are involved in a nuclear arms race. As shown in the
payoff table below, each can choose to continue to build its weapons
stock or alternatively to stop the escalation. The entries show each
country’s payoff in terms of national security from their joint actions.
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