Question

TRUE OR FALSE + EXPLANATIONS

1,Firms do not reap the benefits of their positive externalities so they always produce too little

2,In a static game, Nash Equilibrium are always subgame perfect

3,Risk averse individuals never prefer a lottery over a sure bet

4,Product differentiation makes consumers and producers better off.

Answer 1

Q1) true

Bcoz in case of positive externality, the product tends to have the positive spill overs ( External benefit )

For which the producers are not paid , thus they produce less than socially Optimal level

2) true

Since game is not dynamic , its not played for more than a period , thus NE is itself SPNE

3) true

Risk averse Individuals prefere a sure amount over an uncertain lottery

4) true

Product Differentiation provides the producers a monopoly power, power to set the prices

Hence they are better off

While consumers get access to Increased variety of goods, hence they too gain from product Differentiation is