1. Imagine that you're on vacation in Russia, when suddenly you're arrested and accused of spying for the United States. (You're innocent, of course.) Your captors inform you that if you confess, you'll receive a prison sentence of two years, while your co-conspirator (whom you've never heard of) will receive a prison sentence of twenty years. If you both confess, you'll each receive a prison sentence of five years. You're also told that your co-conspirator is being offered the same option. If you both maintain your innocence, however, there's not enough evidence to convict either of you. Applying economic theories to the problem, what should you choose to do, and why?

2. A hotel owner, having heard that new hotels plan to open in his area, saysl "We have too many hotels in this town already. Statistics show that vacancy rates average 20 percent on any given night." Assuming this is correct, evaluate his negative assess­ment of the situation in terms of business-stealing and product-variety externalities