Answer and Explanation:
As per the data given in the question,
a)
W R C U
A 40,000 15,000 20,000 35,000
B 30,000 17,000 0 47,000
A 40,000 15,000 0 55,000
B 30,000 17,000 20,000 27,000
A 40,000 15,000 10,000 45,000
B 30,000 17,000 10,000 37,000
A 40,000 15,000 0 0
B 30,000 17,000 10,000 -10,000
A 40,000 15,000 10,000 -10,000
B 30,000 17,000 0 0
Since if one of the parties stops cooperating, the project will be shut down in the middle by the other town Which will concede negative returns.
Town B
Pay Doesn't Pay
Pay 45,000 37,000 -100000 0
Town A Doesn't Pay 0 -10,000 0 0
By completing the project(even without cooperation) the town will earn positive returns.
Hence, started project will be completed.
Town B
Pay Doesn't Pay
Pay 45,000 37,000 35,000 47,000
Town A Doesn't Pay 55,000 20,000 0 0
b)
Town B
Pay Doesn't Pay
Pay 45,000 37,000 35,000 47,000
Town A Doesn't Pay 55,000 20,000 0 0
Here
If Town A pays, Town B will not pay.
If Town B pays, Town A will not pay.
That means it shows an inverse relation
Therefore, the Nash Equilibrium in this game = (Pay A, Doesn't pay B) and (Doesn't pay A, Pay B)
In this game, there are no dominant strategy for any town.
c) Since, there is no dominant strategy for any town so it would be difficult for each town to cooperate.
Thus, this game indicates the problem how each town corporate on a Nash equilibrium which gives inequitable payoffs of towns.
