Consider the following game: 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. If this game is repeated over an infinite or uncertain horizon, the most likely observed behavior will be that:
Nessie, Corp.
Pollute Don't pollute
Lago, Inc Pollute -$2,000, -$2,000 -$1,000, -$2,500
Don't pollute -$2,500, -$1,000 -$1,500, -$1,500
1) What is true about dominant strategies in the game in Scenario?
A) "Pollute" is a dominant strategy for both firms.
B) "Pollute" is a dominant strategy for Lago only.
C) "Don't Pollute" is a dominant strategy for both firms.
D) "Don't Pollute" is a dominant strategy for Lago only.
E) There are no dominant strategies.
2) Refer to Scenario. What kind of game is being played by Lago and Nessie?
A) Battle of the Sexes.
B) Prisoners' Dilemma.
C) Beach Location.
D) Stackelberg Output Choice.
E) Cournot Output Choice.
3) Refer to Scenario. The equilibrium of this game, if played only once, is that
A) both firms pollute.
B) only Lago pollutes.
C) only Nessie pollutes.
D) neither firm pollutes.
E) the firms choose a mixed strategy.
4) Refer to Scenario. If this game is repeated over an infinite or uncertain horizon, the most likely observed behavior will be that:.
A) both firms pollute.
B) only Lago pollutes.
C) only Nessie pollutes.
D) neither firm pollutes.
E) the firms alternate polluting in different periods.