The payoff table below demonstrates pricing decision game between two pizza
providers in town. Each pizza provider is faced with decision to price their product in a
high, medium, or low price category. (3 pts)
Does Pizza Hut have dominated strategy in the original payoff table? If so, what it
and why is dominated? If not. why not?
Does Dominoes have adominated strategy in the original payofl table? If so, what it
and why isi dominated? If not, why not?
c. What is the resulting dominant strategy equilibrium of this pricing decision problem?
Please explain the decision making process of each firm.
2. What role do property rights play in creating common property resources? Why are
common property resources subject to market failure due to non-excludability?(2 pts
3. Suppose there are two movie rentalstores in town: Captain Video and Movie Mania.
These movie rental firms face choice between two advertising strategies: television (T)
and radio (R). Captain Video will be the first firm to make decision, and their decision
will be based on the anticipated action of Movie Mania. A game tree is provided below:
Find the Nash equilibrium using the backward induction method. Please explain the decision
making process of each firm. (3 pts)
The figure below shows the marginal damage (MD) and the marginal abatement cost
(MAC) curve facing an industry that discharges pollutant into the environment. (4 pts)
Ifenvironmental regulations do not restrict pollution by this industry how many tons per
month would be discharged? What is the total damage caused by pollution at this level
emissions? What are total abatement costs per month? What is the total social cost
pollution in this industry in the absence of government restrictions on pollution?
b. If environmental regulators banned all pollution, what is the resulting total abatement
cost for the industry per month? What the total social cost for zero pollution in the
industry per month?
c. Using the figure above, explain why zero pollution in the industry not optimal from
society' point of view?
d. What is the socially optimal level of emissions for the industry per month? What would
be the resulting total abatement cost per month? Total damage per month? Total social
cost per month?
If environmental authorities wished to control pollution in the industry by imposing an
emission tax on pollution, what would be the optimal tax rate per ton of emissions? At
this rate, how many tons of pollutants would the industry emit per month? What the
total tax bill to be collected per month? What would be the resulting total abatement cost
5. Explain the trade-off managers must make between considering private versus social
costs? How might this trade-ofl differ among industries? (3 pts)
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