Problem_Set_2-Spring2014_SOLN

If both decide to kill 5 buffalos each per day then

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Unformatted text preview: n West. If both decide to kill 5 buffalos each per day, then they earn profits of $500 each. If they both decide to kill 1 buffalo each per day, then they earn profits of $700 each (because the herd is so much more productive). However, if one decides to kill 1 and the other decides to kill 5, the first earns $200 in profits and the second earns $1000 in profits. A) Set up the 4-box diagram for these choices and payoffs. B) If the settlers behave competitively, what is the equilibrium outcome? C) Why is the market equilibrium of a common resource ineff...
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