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(Solved): 4. Consider the payoff matrix shown below, which represents the contributions and accompanying payo ...
4. Consider the payoff matrix shown below, which represents the contributions and accompanying payoffs associated with the production of some good. Person \begin{tabular}{l} 4 \\ \multicolumn{1}{c}{} \\ 0 \\ 0 \\ 0 \\ 0 \end{tabular} a. Based on the information shown in the payoff matrix, explain why you think this good should be classified as a public good. (HINT: Recall the two criteria associated with public goods, and explain why each of those appears to be satisfied.) b. Find the Nash equilibrium. How many Nash equilibria does this game have? c. Find Person A's dominant strategy, or explain why there isn't one. d. If these two people are not cooperating, will the good be provided? Why or why not? e. Explain why cooperation matters here. Would the situation change if they were able to cooperate somehow? Why or why not?
Expert Answer
a.The payoff matrix shows that producing the good results in a positive payoff for both Person A and Person B. Additionally, the payoffs are non-excludable and non-rivalrous, which means that once the good is produced, it can be enjoyed by both parties without reducing its availability or quality. Therefore, this good should be classified as a public good.b. The Nash equilibrium of this game is (Produce, Produce). There is only one Nash equilibrium in this game.