Determine the total water extraction

Reference no: EM132206674

Question: Province Twelve has two cities, 1 and 2. Both cities need clean water for their residents. To provide clean water two cities utilize a common lake. The total benefit derived by city i depends on the total amount of water drawn from the lake, and is given by: (10(w1 +w2))wi where wi is the amount of water extracted by city i, with i = 1,2. The marginal cost of extracting one unit of water is 1 in both cities, and there is no fixed cost. The cities simultaneously decide on how much water to extract.

a) Give the normal form of the game.

b) Derive and depict the best response functions of each city.

c) Find the pure strategy Nash equilibrium of the game, and determine the total water extraction.

Reference no: EM132206674

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