Question 3: (6+6+8)

A. Atif Aslam and Rahat Fateh Ali are working on a song. Each of them has two options;

work hard or be slack. If both of them work hard they will end up with a high quality

song that gets them $1000,000 each in profits (after deducting their respective

opportunity costs). On the other hand if both of them are slack, they will end up with

a low quality song that gets them $500,000 each in profits. If one of them works hard

and the other is slack they end up with a mediocre song and the person working hard

gets $400,000 in profits (due to her higher opportunity cost) while the person who is

slack earns $1,200,000 (due to her lower opportunity cost).

i. Construct the payoff matrix

ii. Are there any dominant strategies? If yes, what?

iii. What is the solution to this game?

iv. Is the solution optimal? Why or why not?