Question
Alexandria and Bob can each choose to Work or Not Work on a task. Each person's output is 80 for Not Work, and 160 for
Alexandria and Bob can each choose to Work or Not Work on a task. Each person's output is 80 for Not Work, and 160 for Work. The cost of effort is 0 for Not Work and 70 for Work. The total output is shared equally between the two.'For example, if Alexandria puts in her effort but Bob does not, her net income is 160 - 70 = 90.' Assume both workers are completely selfish. Based on this information, determine whether each of the following statements is true or false.
(a) In the equilibrium outcome, they both end up with a net income of 80 each. (b) In the situation where both Alexandria and Bob put in effort, Alexandria does not have an incentive to deviate. (c) If Bob chooses to Not Work, he will definitely end up with a net income of 120. (d) The equilibrium outcome is the socially optimal outcome (outcome that maximises sum of their payoffs).
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