Question

Q1:A dominant strategy

		is one that is the best for a firm, no matter what strategies other firms use.
		is one that a firm is forced into following by government policy.
		involves colluding with rivals to maximise joint profits.
		involves deciding what to do after all rivals have chosen their own strategies.

Q2:Which of the following is NOT a characteristic of game theory?

		Rules that determine what actions are allowable.
		Payoffs that are the results of the interaction among players' strategies.
		Strategies that players employ to attain their objectives.
		Independence among players.

Q3:Because producers do not bear the external cost of pollution

		the economically efficient level of production is achieved.
		private production is below the economically efficient level.
		private production exceeds the economically efficient level.
		the market price is too high.

Q4:A Pareto efficient outcome is where

		revenue is maximised.
		no individual can be made better off without another individual being made worse off.
		all parties are operating at their highest production output.
		less resources can be used to produce greater quantity

Q5:

An example of a negative production externality would be

		loud roadwork noises that keep the neighbourhood awake.
		increased shipping costs.
		diminish returns on production.
		education.

Answer 1

Q1. Answer: is one that is the best for a firm, no matter what strategies other firms use.

By definition, a dominant strategy is said to take place when the deciding firm has the best strategy no matter what the other firm does. Hence, dominant strategy is indifferent to other firm's strategies.

Q2. Answer: Independence among players.

In game theory, you might have come across games like Prisoner's dilemma wherein one player depends on the other player's strategy to play his strategy in the first place. Hence independence among players is not a characteristic of game theory. Rules, payoffs, strategies (pure, dominant, mixed, etc) form a part of the characteristics of game theory.

Q3. Answer: private production exceeds the economically efficient level.

At economically efficient levels, the producer surplus and consumer surplus are pareto optimal, that is neither of them can be increased without decreasing the other. So, in this juncture when the firms doesn't bare the external cost of pollution, it essentially means that the producer surplus increases (owing to the saved cost). Therefore, the production levels in these firms increase.

Q4. Answer: no individual can be made better off without another individual being made worse off.

This concedes with the definition of pareto efficient bundle. The optimal allocation wherein you can't improve an allocation without decreasing the same in the other bundle.

Q5. Answer: loud roadwork noises that keep the neighbourhood awake.

Noise pollution is regarded as a negative externality because you are enduring the same without asking for it in the first place. Therefore, a negative externality.

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