Two firms are situated next to a lake, and it costs each firm $1,500 per period...

  

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Two firms are situated next to a lake, and it costs each firm $1,500 per period to use filters that avoid polluting the lake. However, each firm must use the lake's water in production, so it is also costly to have a polluted lake. The cost to each firm of dealing with water from a polluted lake is $1,000 times the number of polluting firms. Nessie, Corp. Pollute Don't Pollute Lago, Inc. Don't Pollute Pollute -$2,000,-$2,000 -$2,500,-$1,000 -$1,000,-$2,500 -$1,500,-$1,500 a) Is there a dominant strategy? If yes, explain which one it is, and why. If not, explain why. b) If both companies act simultaneously, what will be the equilibrium? Justify your answer. c) If Nessie, Corp acts first, what is the equilibrium? Explain your answer. Two firms are situated next to a lake, and it costs each firm $1,500 per period to use filters that avoid polluting the lake. However, each firm must use the lake's water in production, so it is also costly to have a polluted lake. The cost to each firm of dealing with water from a polluted lake is $1,000 times the number of polluting firms. Nessie, Corp. Pollute Don't Pollute Lago, Inc. Don't Pollute Pollute -$2,000,-$2,000 -$2,500,-$1,000 -$1,000,-$2,500 -$1,500,-$1,500 a) Is there a dominant strategy? If yes, explain which one it is, and why. If not, explain why. b) If both companies act simultaneously, what will be the equilibrium? Justify your answer. c) If Nessie, Corp acts first, what is the equilibrium? Explain your answer.

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a To determine if there is a dominant strategy we need to compare the payoffs for each firm in all possible scenarios From the given payoff matrix we ... View the full answer