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- There is a desirable good, the number of units of which is determined stochastically—either 1 or 2 units are available with probability 0.5 each. Individual 1 knows how many units are available but 2 does not. Individual 1 can propose to give individual 2 either 0 or 1 unit of the good. Then individual 2, after seeing 1’s proposal, either accepts or rejects the proposal. In the event of rejection, both individuals receive zero units. Each person cares only about the number of objects she obtains, i.e., her utility function is given by u(x) = x, where x denotes the number of units of the good received.Model this strategic environment as an extensive form game and answer the following questions.1. Specify the normal form representation (using matrix) of this extensive form game. Explain what players’ strategy sets are and how you derive their payoffs.2. Find the set of all pure strategy Nash equilibrium of this game.Select one or more: a. A Pareto efficient outcome is where you cannot make anyone better off without someone else ending up worse off. b. All are happy with their share of income in a Pareto efficient outcome. c. There is only ever one Pareto efficient outcome. d. If two people have £100 to split, any split in which all the money is used up is Pareto-Efficient, even if one person gets none.Show that a decision maker who has a linear utilityfunction will rank two lotteries according to their expectedvalue.
- Indicate whether the statement is true or false, and justify your answer.Individuals who alwaysmake decisions consistent with completeness, transitivity, and independence are exhibiting bounded rationality.Whose work on decision making received a 2002 Nobel Prize?Discuss the Contingent Valuation Method
- Economies of scope refers to the idea that economic value created increases with the amount of the same good produced at a given time Group of answer choices True FalseQ16 Pareto optimality refers to the maximum efficient allocation of economic resources such that there is no way that one's wealth another person worse off: this statement is choices - irrelevant -conditionally true -always true -always falseUnfortunately, the answer is option B. Why is your response different with answer?
- Modified True or False: State whether each statement is true or false. If the statement is false, briefly explain why it is so, and then restate it to make it true. k. Pareto efficiency or Pareto optimality is a condition where no change is possible that will make some members of society better off without making some other members of society worse off.Indicate whether each statement is true or false, and justify your answer.If members of a society have transitive preferences, then that society as a whole must also have transitive preferences.By using the expected utility theory approach with u(x)=x2, choose the optimal decision for three different possible outcomes with probabilities p(ω1)=1/2, p(ω2)=p(ω3)=1/4, rewards R(d1,ω1)=£49,R(d1,ω2)=R(d1,ω3)=£25, R(d2,ω1)=£36,R(d2,ω2)=£100,R(d2,ω3)=£0, R(d3,ω1)=£81,R(d3,ω2)=R(d3,ω3)=£0