Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Do not use chatgpt here Answer this properly Two people, A and B, are deciding whether to put effort into producing a public good or

image text in transcribed

Do not use chatgpt here

Answer this properly

image text in transcribed
Two people, A and B, are deciding whether to put effort into producing a public good or not. Each person, i, can either choose no effort (s; = (1) or yes effort (s; = 1). The total public good produced is G = ass + (1 a)sg, where a (0, 1). The cost of doing no effort is (). The cost of doing yves effort is 1.5. The payoff to a playver is the total public goods provided (G) minus her personal costs. (a) Given a choice by player B, sg, write down player A's utility from choosing no effort. Given a choice by player B, sg, write down player A's utility from choosing yes effort. Comparing these two utilities, write down player A's best response. [10 marks] (b) Noticing that player B's problem is identical to player A's, what is the unique Nash equilibrinm of this game? [10 marks] (c) In four sentences or less, explain why the Nash equilibrium represents a social dilemma and how this relates to the idea of positive externalities. [10 marks]

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

Microeconomics

Authors: Michael Parkin

12th edition

133872297, 133872293, 978-1292094632

More Books

Students also viewed these Economics questions