1. Briefly explain whether or not the Prisoners' Dilemma has a first-mover advantage.
2. Briefly discuss the rationale for an insurance company including a deductible on a typical policy.
3. Consider sales taxes. If the goal of government is to raise tax revenue when imposing such taxes, which category of goods should the government target?
On the other hand, if the goal of government is to reduce consumption of certain goods by taxing them, which category of goods should the government target?
Provide an example of a good from each category. Your examples may come from any nation.
4. Compare a market which is controlled by a single price monopolist to a perfectly competitive market. Address as many issues as you can in as much detail as you can.© BrainMass Inc. brainmass.com October 17, 2018, 12:37 am ad1c9bdddf
1. The prisoner's dilema doesn't have a first move advantge because regardless of what the other person does, the best strategy is to confess. Even if one prisoner knew what the other has done, that first prisoner would be better off confessing.
2. An insurance company exists to sell security to its clients. It assumes the risk of an accident at a price that allows it to make a profit given the probability set for accidents. Clients pay to ensure that if anything happens, their loss will not be as significant. A deductible ensure that the client has ...
Prisoners' Dilemma is explicated for microeconomic.
The Prisoner's Dilemma and the Nash Equilibrium
Explain the Prisoner's Dilemma game, the notion of dominant strategy, and the concept of Nash equilibrium and cooperation. Using these concepts, then, analyze the following duopoly game.
Philip Morris and R.J. Reynolds spend huge sums of money each year to advertise their tobacco products in an attempt to steal customers from each other. Suppose each year Philip Morris and R.J. Reynolds have to decide whether or not they want to spend money on advertising. If neither firm advertises, each will earn a profit of $2 million. If they both advertise, each will earn a profit of $1.5 million. If one firm advertises and the other does not, the firm that advertises will earn a profit of $2.8 million and the other firm will earn $1 million.
• If the two companies decide to collude to maximize profits, what will each company do? What profit will each company earn?
• What is the dominant strategy for each company, and what profit will each company earn if they follow those strategies?
• Is the solution you found in the first question a Nash equilibrium?
• Is the solution you found in the second question a Nash equilibrium?
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