The United States claims that Canada subsidizes the production of softwood lumber

1. The United States claims that Canada subsidizes the production of softwood lumber and that imports of lumber damage the interests of US producers. The United States has imposed a high tariff on Canadian imports to counter the subsidy. Canada is thinking of retaliating by refusing to export water to California. The following table shows the payoff matrix for the game that Canada and the US are playing:

a. What is the US’ dominant strategy?

b. What is Canada’s dominant strategy?

c. What is the outcome of the game? Explain.

d. Is this game like a Prisoner’s Dilemma game or different in some crucial way? Explain.

e. Which country would benefit more from a free trade equipment?

5. Carla substitutes her income as a teaching assistant by editing term papers for undergraduates.

There are 8 students per week for who she might edit, each with a reservation price or willingness to pay as given in the following table:

Carla is a profit maximizer, and her opportunity cost of her time to edit each paper is $29.

a. If Carla had to charge the same price to each student, how many papers should she edit? What is her economic profit?

b. Through experience and repeat business, Carla knows the willingness to pay of each student. How many papers will she edit if she could practice first degree price discrimination or charge a different price to each student? What will her economic profit be?

c. Suppose Carla cannot practice first degree price discrimination but instead offers a rebate coupon. She knows from experience and repeat business that students whose willingness to pay at least $36 or more never mail in rebate coupons, while those whose willingness to pay is below $36 always do so.

Assuming the same opportunity cost of $29, what should Carla’s list (high) price be and what amount should she offer as a rebate? What will her economic profit be?