There is a community of 400 commercial fishers, and there are two lakes where they can fish, ONE and TWO. Fishers choose the lake on which they fish. On ONE, the catch per fisher is 30 pounds, regardless of how many fishers choose ONE. On TWO the catch per fisher decreases as the number of fishers increases. Specifically, C2 = 200 – N2, where N2 is the number of fishers on TWO and C2 is pounds of fish caught by each fisher. Fishers' preferences: Fishers care about the quantity of fish they catch, the more they catch, the better off they are. In addition, if a fisher anticipates that the quantity of fish he would catch on ONE is identical to the quantity he would catch on TWO, he prefers to fish on TWO. (a) Why this problem is the Game Theory problem? (b) What is a strategy set for a representative player REP? (c) Let M be the number of fishers other than a representative, REP, who choose to fish on TWO. Construct a payoff table for REP in the game in which all 400 fishers choose a lake, either ONE or TWO. (d) When REP will choose to fish on ONE? When REP will choose to fish on TWO? Explain. (e) In equilibrium, how many fishers fish on ONE and how many fish on TWO? Is this the only Nash equilibrium? What are the fishers' payoffs in these equilibria? (f) Are the Nash equilibria Pareto-optimal? If you think not, pick one of the equilibria and find a strategy combination that Pareto-dominates it - explain where you see Pareto improvement. (g) Graph the payoff functions to find REP's best response function. Dis- cuss your findings.
There is a community of 400 commercial fishers, and there are two lakes where they can fish, ONE and TWO. Fishers choose the lake on which they fish. On ONE, the catch per fisher is 30 pounds, regardless of how many fishers choose ONE. On TWO the catch per fisher decreases as the number of fishers increases. Specifically, C2 = 200 – N2, where N2 is the number of fishers on TWO and C2 is pounds of fish caught by each fisher. Fishers' preferences: Fishers care about the quantity of fish they catch, the more they catch, the better off they are. In addition, if a fisher anticipates that the quantity of fish he would catch on ONE is identical to the quantity he would catch on TWO, he prefers to fish on TWO. (a) Why this problem is the Game Theory problem? (b) What is a strategy set for a representative player REP? (c) Let M be the number of fishers other than a representative, REP, who choose to fish on TWO. Construct a payoff table for REP in the game in which all 400 fishers choose a lake, either ONE or TWO. (d) When REP will choose to fish on ONE? When REP will choose to fish on TWO? Explain. (e) In equilibrium, how many fishers fish on ONE and how many fish on TWO? Is this the only Nash equilibrium? What are the fishers' payoffs in these equilibria? (f) Are the Nash equilibria Pareto-optimal? If you think not, pick one of the equilibria and find a strategy combination that Pareto-dominates it - explain where you see Pareto improvement. (g) Graph the payoff functions to find REP's best response function. Dis- cuss your findings.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education