HmWk03 - Economics 1200 Spring 2012 Homework # 3 Write your...

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1 Economics 1200 Spring 2012 Homework # 3 Write your answers to the following questions on separate sheets of paper. Your answers are due in class on Thursday, February 23, 2012 . No late homeworks are accepted. 1. A public good is one for which those who do not pay for the good enjoy the same benefits as those who do pay for it. Think of publicly supported television or radio; paid members cannot exclude non-member “free-riders” from watching or listening. With this in mind, consider the following three- person game involving contributions to a public good. Call the three players: Larry, Curly and Moe. Each player has two action choices: contribute or not contribute one unit to the public good. Each player who chooses to contribute pays a cost of 1.5 units. If a player contributes, his payoff is the total number of units contributed by all players, himself included (so a maximum of 3 units), less the cost of making his own contribution, 1.5 units. If a player does not contribute, his payoff is the total number of units contributed by all other players. a) Write this three-player game down in normal (strategic) form. b) Find the Nash equilibrium of this game. Is this equilibrium the most efficient outcome? Explain why or why not. 2.
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This note was uploaded on 03/04/2012 for the course ECON 1200 taught by Professor Staff during the Fall '08 term at Pittsburgh.

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HmWk03 - Economics 1200 Spring 2012 Homework # 3 Write your...

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