Question
We are presented with land use choices.Each individual is free to choose their own development strategy based on the profit potential of the development a)
We are presented with land use choices.Each individual is free to choose their own development strategy based on the profit
potential of the development
a) Does either landowner have a dominant strategy?(5 Points) A dominant strategy is what you are going to do, knowing what they are going to do-thisleads to the Nash Equilibrium Explain how and what the dominant strategy is (hint, there does not need to be two dominant strategies).
b) Is there a Nash equilibrium? Explain.(5 Points)
c) Develop a Profit Payoff for this choice where the alternative
Nash Equilibrium would occur. (4 Points)
d) What is the socially optimal solution?(3 Points)
e) How can we arrive at this point (consider the Coase Solution).
Explain the necessary payoff. (3 Points) Payoff Matrix
Smith
Apple OrchardPig Farm
$400
Rental Housing
J: Profit=$700J: Profit =
Jones
S: Profit =$200S: Profit = $450
Bee KeepingJ: Profit =$650J: Profit = $450
S: Profit =$400S: Profit = $500
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