Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

2. Suppose several friends go out to dinner with the understanding that the bill will be divided equally. The problem is that someone might order

image text in transcribed
2. Suppose several friends go out to dinner with the understanding that the bill will be divided equally. The problem is that someone might order something expensive, knowing that part of the cost will be paid by others. To analyze such a situation, supposen diners are present, and, for simplicity, they have the same food preferences. The accompanying table states the price of each of three dishes on the menu and how much each person values it. Value is measured by the maximum amount the person would be willing to pay for the meal. Dining Dilemma Dish Value Price Surplus Pasta Primavera 521.00 514.00 $7.00 Salmon 526.00 521.00 55.00 Filet Mignon 529.00 530.00 -51.00 Surplus is just the value assigned to the meal, less the meal's price. The pasta dish costs $14 and each diner assigns it a value of $21. Thus, if a diner had to pay for the entire meal, then each diner would buy the pasta dish, since the surplus of $7 exceeds the surplus from either salmon or steak. In fact, a diner would prefer to skip dinner then to pay the $30 for the steak, as reflected by a negative surplus. A player's payoff equals the value of the meal she eats, less the amount she has to pay. The latter is assumed to equal the total bill divided by the number of diners. For example, if three diners are present and each orders a different meal, then the payoff to the one ordering the pasta dish is 21- 14 + 21 + 30 = 21 - 21.67 = -0.67 the payoff for the person ordering the salmon is 26 - 14 + 21 + 30 = 43

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Entrepreneurship

Authors: Andrew Zacharakis, William D Bygrave

5th Edition

1119563097, 9781119563099

More Books

Students also viewed these Economics questions

Question

1. How is overtime pay computed for nonexempt, salaried workers?

Answered: 1 week ago

Question

8. What are the costs of collecting the information?

Answered: 1 week ago

Question

1. Build trust and share information with others.

Answered: 1 week ago