An economic model is a simplified version of reality used to analyze real-world economic situations

Make an argument for user charges being both efficient and equitable. What information can user charges provide us that free provision can not?

What will be an ideal response?

Refer to the payoff matrix. Suppose that Speedy Bike and Power Bike are the only two bicycle manufacturing firms serving the market. Both can choose large or small advertising budgets. If this is a repeated game and the firms cooperate to maximize profits, which of the following outcomes would we expect to occur?

A.  In repeated playing, the outcomes would alternate between cells A and D.
B.  In repeated playing, the outcomes would alternate between cells B and C.
C.  The two firms will agree to keep their advertising budgets small over time.
D.  The game will reach a Nash equilibrium at cell A.