Can a Nash equilibrium fail to be Pareto optimal? Can a Pareto optimal outcome fail to be a Nash equilibrium? Justify your answers using the Prisoners' Dilemma game.
What will be an ideal response?
A Nash equilibrium need not be Pareto optimal, and a Pareto optimal outcome need not be a Nash equilibrium. In the Prisoners' Dilemma game, confessing is the dominant strategy for both players, so this outcome is the only Nash equilibrium. It is not, however, Pareto optimal, because both players get a better payoff in the situation where neither confesses. If at least one player chooses not to confess, the result is Pareto optimal because it is impossible to improve one player's welfare without harming the other player. However, these situations are not Nash equilibria, because one or both players is not choosing the dominant strategy of confessing.
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Refer to Figure 18-1. The depreciation of the euro is represented as a movement from
A) B to A. B) D to A. C) C to D. D) B to C.
The main problem we had during the Great Depression, said John Maynard Keynes, was inadequate ________.
Fill in the blank(s) with the appropriate word(s).
A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 1,000 units is $2.50. The minimum possible average variable cost is $2. The market price of the product is $2.50. To maximize profits, the firm should
A. increase production to more than 1,000 units. B. decrease production to less than 1,000 units. C. continue producing 1,000 units. D. shut down.
Which of the following is a TRUE statement?
A. Opportunity cost is always a foregone opportunity. B. Opportunity cost is always measured in the nation's currency. C. Opportunity cost is an objective measure since the cost of an activity is the same for everyone. D. The fewer alternatives there are the greater the opportunity cost.