Lets return to the chapters discussion of Jack and Jills water duopoly. Suppose that Jack and Jill are at the duopolys Nash equilibrium (80 gallons) when a third person, John, discovers a water source and joins the market as a third producer. a. Jack and Jill propose that the three of them continue to produce a total of 80 gallons, splitting the market three ways. If John agrees to this, how much profit will he make? b. After agreeing to the proposed deal, John is considering increasing his production by 10 gallons. If he does, and Jack and Jill stick to the agreement, how much profit will John make? What does this tell you about the proposed agreement? c. What is the Nash equilibrium for this market with three producers? How does it compare to the Nash equilibrium with two producers?
Week 6 2/24/16 consumer behavior o why do we buy stuff To maximize utility: The satisfaction a consumer obtains from the consumption of a good or service Utility facts: o Measured in utils o We CAN compare the utils assigned to multiple goods by one person o We CANNOT compare the utils assigned to a good by multiple people people have different preferences, the assessments differ Total vs. Marginal utility Total utility – the tot