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Two neighbors in a rural community were fed up with the town's landfill policies and decided to purchase land together to use as their own
Two neighbors in a rural community were fed up with the town's landfill policies and decided to purchase land together to use as their own landfill. However, the two neighbors did not anticipate the consequences of their purchase and quickly found their new landfill to smell. Each neighbor has 10 bags of trash. Dumping on their own land is cheap, but they have to endure an increased bad smell, however dumping at the town's landfill incurs a cost of $3 per bag. Neighbor 1 lives downwind of the new landfill and endures the brunt of the smell. Her utility is u1(b1,b2)=3(10b1)(b1+b2)2(b1+b2) while the upwind neighbor's utility is u2(b1,b2)=3(10b2)(b1+b2)2 where bi is the number of bags each neighbor dumps at their own landfill. Note that the utilities are negative as both actions are actually (a) How much will each neighbor dump at their new landfill? (b) If the neighbors were to coordinate, how much would they dump at their new landfill
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