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Unformatted text preview: where the actions are “cooperate” and “cheat” and the payoﬀs are one of D , R and M . (e) Would the two ﬁrms collude if they competed for only one period? 3. Suppose that 4 roommates are planning to spend a Saturday night in their dorm room watching old movies. They are debating how many to watch. Here is their willingness to pay for each movie: John Eric Brian Adam 1st ﬁlm $7 $5 $3 $2 2nd ﬁlm $6 $4 $2 $1 3rd ﬁlm $5 $3 $1 $0 4th ﬁlm $4 $2 $0 $0 5th ﬁlm $3 $1 $0 $0 1 (a) Suppose that renting a movie costs $4. If each person privately rented a movie to watch on their own, how many would each person rent? (b) Suppose that each roommate enjoys watching movies together just as much as alone. Within a dorm room, then, is the showing of a movie a public good? Why or why not? (c) If it costs $8 to rent a movie, how many should they rent to maximize total surplus? 2...
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This note was uploaded on 04/08/2008 for the course ECON 115 taught by Professor Stevenberry during the Fall '07 term at Yale.
- Fall '07