1). Define and explain the concept of an externality. Provide examples of both positive and a negative externality.
2). The Prisoner's Dilemma Exercise:
|
|
|
B' Strategy
|
|
|
|
Do Not Advertise
|
Advertise
|
|
Do Not Advertise
|
A's Profit: $500,000
B's Profit: $500,000
|
A's Loss: $250,000
B's Profit: $750,000
|
|
A's Strategy
|
|
|
|
|
Advertise
|
A's Profit: $750,000
B's Loss: $250,000
|
A's Profit: $100,000
|
|
|
|
B's Profit: $100,000
|