Scenario 13.9
Consider the following game:
Two firms are situated next to a lake, and it costs each firm $1,500 per period to use filters that avoid polluting the lake. However, each firm must use the lake's water in production, so it is also costly to have a polluted lake. The cost to each firm of dealing with water from a polluted lake is $1,000 times the number of polluting firms.
-Refer to Scenario 13.9. The equilibrium of this game, if played only once, is that:
A) both firms pollute.
B) only Lago pollutes.
C) only Nessie pollutes.
D) neither firm pollutes.
E) the firms choose a mixed strategy.

Question

Scenario 13.9
Consider the following game:
Two firms are situated next to a lake, and it costs each firm $1,500 per period to use filters that avoid polluting the lake. However, each firm must use the lake's water in production, so it is also costly to have a polluted lake. The cost to each firm of dealing with water from a polluted lake is $1,000 times the number of polluting firms. 
-Refer to Scenario 13.9. The equilibrium of this game, if played only once, is that:
A) both firms pollute. 
B) only Lago pollutes. 
C) only Nessie pollutes. 
D) neither firm pollutes. 
E) the firms choose a mixed strategy.

Quizplus · Accepted Answer

In a one-shot game, both firms have an incentive to pollute because it is their dominant strategy, assuming the costs of pollution are less than the costs of pollution control and there is no cooperation or enforceable agreement to prevent pollution. Each firm aims to minimize its costs, leading to a Nash Equilibrium where both choose to pollute.

Scenario 13.9 Consider the Following Game