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2. Two firms use water from a lake for production purposes. Any waste products from the production processes are either diverted directly back into the
2. Two firms use water from a lake for production purposes. Any waste products from the production processes are either diverted directly back into the lake or purified through a chemical process before being diverted back into the lake. If only one of the firms diverts wastes back into the lake before purification, then this action will not substantially reduce the quality of the water to any great extent. However, the ecology of the lake will be substantially affected for the worse if both firms adopt this policy. This will also harm their future productions. The cost of setting up the purification process is one unit (of a measurable utility). If both firms divert their waste products into the lake without purifying them first, then they will each lose 5 units. However, no loss will be incurred if only one firm diverts its waste products into the lake before purification. (a) Express the above game in normal (strategic) form. (b) Find all Nash Equilibrium Points (NEPs) for this game. (c) Discuss each of these equilibria with respect to their corresponding game values
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