KKindly please answer
Consider market for masks. Not everyone values the mask equally: marginal private benet is 100 Q and marginal private costs are given by 20 (per Q). Given that wearing masks will help reduce spread of virus, marginal benet to others is 1130 = 50 (per Q). o 3.. Draw the marginal private benet (MPB) marginal social benet (MSB), marginal private cost (MPG), and marginal social cost (MSG) curves on a graph. labeling clearly the axes and intercepts. Pay close attention to what is on the Xiaxis and yiaxis. _ ' o b. What is the equilibrium amount of masks? What is the eicient level? 0 c. What is the deadweight loss (D'WL) caused by the externality? Shade in the area. of the DWL on the graph from part (a). What is the welfare gain from moving to the efcient level of Q? o d. For which good is a market absent in this case? Government solution: Suppose the government steps in and decides to correct the externality by subsi dizing masks. o e. Suggest a Pigouvian tax that would induce the efcient consumption. What is the optimal tax rate per unit, and how much subsidy is needed? Market solution: The Cease theorem states that \"the eicient outcome should occur regardless of which party has the property rights,\" implying that the market can potentially solve externalities by itself (no need for the government to step inl). o f. Interpret the Cease theorem in the context of this question. What are ways in which the Cease theorem could fail? Give some examples in the context of this question. I 1. Consider the following game. b C 2,0 0.5 1,0 0,4 4,1 2.1 0,2 1,0 2,1 5.0 0,0 0,3 0,0 1,0 4,1 0,0 (a) Compute the set of rationalizable strategies. (b) Compute the set of all Nash equilibria. 2. Consider the following game. C 1/2 B 1/2 2 R R R r (a) Find all Nash equilibria in pure strategies. (b) Find a Nash equilibrium in which Player 1 plays a mixed strategy (without putting probability 1 on any of his strategies). 3. Use backwards induction to compute a Nash equilibrium of the following game. 1/4 2 74. A unit mass of kids are uniformly located on a street, denoted by the [0, 1] interval. There are two ice cream parlors, one located in r and the other is located in 1 - r, where r 0. Given the prices p and q for the ice cream in stores located at r and 1 - r, respectively, each kid buys one unit of ice cream from the store with the lowest total cost, which is the sum of the price and the cost to go to the store. (If the total cost is the same, she flips a coin to choose the store to buy.) (a) Compute the revenue for each firm, as a function of price vector (p. q). The revenue is price times the total mass of the kids who buy from the given store. (b) Assume that each store set their own price simultaneously and try to maximize the expected value of its own revenue, as computed in part (a). Write this game in normal form. (c) Compute the set of Nash equilibria. (d) Compute the set of rationalizable strategies