1) Suppose that firm 1 and firm 2 sell Vietnamese fast food. Both of the firms h

Question

1) Suppose that firm 1 and firm 2 sell Vietnamese fast food. Both of the firms have decided to locate stores in Denver. Each must decide whether to (a) open one store or (b) open two stores. If each opens one store, firm 1 makes 3 and firm 2 makes 5. If both open two stores firm 1 makes 1 and firm 2 makes 3. If firm 1 opens two stores and firm 2 opens 1 store, firm 1 makes 5 and firm 2 makes 2. If firm 1 opens one store and firm 2 opens 2 stores, firm 1 makes 2 and firm 2 makes 3.

(A) Does either player have a dominant strategy? Explain your answer.
(B) Is there an outcome in dominant strategies? If so, identify it. If not, explain why. (B) Is there a Nash equilibrium of this game? If so, identify it. If not, explain why.

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(2) Lojak is a anti-automobile theft device which is attached to an automobile and identifies its location if the automobile is stolen. Suppose that statisticians have observed that automobile theft rates in a city drop by more than 50% when more than 10% of the automobiles have Lojak devices. Provide an economic argument which would support a government paying for part of the price of a Lojak device.



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(3) Snowmobiling in Yellowstone National Park has been a contentious issue for years. Opponents of snowmobiling argue that there is too much snowmobiling in the park. They cite the pollution emitted by snowmobiles, the noise created by snowmobiles (which affects all visitors to the park) and the impact of snowmobiles on wildlife (which affects the quality of visitors%u2019 stay in Yellowstone) as some of the problems with snowmobiles.

(A) Present an economic argument, using a graph, which supports the position that there is too much snowmobiling in the park and that, as a result, some type of government action is appropriate.

(B) Present an economic argument which supports the position that government action is not appropriate.

(C) Opponents of snowmobiling argue that snowmobiles should be barred from the park. Discuss what an economic analysis would suggest with respect to this argument. Of course, present the economic argument supporting your position.

Explanation / Answer

Present an economic argument, using a graph, which supports the position that there is too much snowmobiling in the park and that, as a result, some type of government action is appropriate.

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