Question
A factory is suspected of producing drugs illegally. The authority is deciding whether to conduct an inspection. If the factory produces drugs and an inspection
A factory is suspected of producing drugs illegally. The authority is deciding whether to conduct an inspection. If the factory produces drugs and an inspection takes place, the drugs will be discovered. The cost of an inspection to the government is 100. The benefit from the inspection is 500 if drugs are found, but 0 if none are found. The payoff to the authority from conducting an inspection is the benefit minus the cost, while the payoff from not inspecting is 0. For the factory, the payoff from producing drugs and not being caught is 200, from not producing drugs is 0, and from producing drugs and being caught is -300. A factory must decide whether or not to produce drugs, and the government must decide whether or not to conduct an inspection.
Find all mixed strategy Nash Equilibrium.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started