Peter and Olga live near a lake with open fishing, and both have fishing boats there. They are the only two providers of fish to their local fish market. What is likely to happen if the local fish market maintains a Nash equilibrium?
A)Peter and Olga will obtain the maximum possible profits.
B)Fish prices will fall due to competitive pressures.
C)The supply of fish will flourish due to underfishing.
D)The supply of fish will dwindle due to overfishing.

Question

Quizplus · Accepted Answer

The Nash equilibrium suggests that both Peter and Olga will fish as much as they can to maximize their own profits. This may lead to overfishing of the lake, causing the supply of fish to dwindle over time. As a result, the fish market may have to reduce its supply, leading to higher prices. Therefore, the best choice is D, as overfishing will eventually lead to a reduction in fish supply.

Peter and Olga Live near a Lake with Open Fishing