Question #64015

suppose exert either low effort or high effort. Low effort is costless and high effort costs $10. The return to effort on the total combined effort. If they both exert low effort then the return is $5 for each. If one exerts low effort and the other high effort then the return is $10 for each. If they both exert high effort then the return is $30 for each.

(a) what is net pay (show payoff matrix),(b) tell equilibrium outcome.(c) Is there a prisoners' dilemma?

(a) what is net pay (show payoff matrix),(b) tell equilibrium outcome.(c) Is there a prisoners' dilemma?

Expert's answer

Low effort is costless and high effort costs $10. If they both exert low effort then the return is $5 for each. If one exerts low effort and the other high effort then the return is $10 for each. If they both exert high effort then the return is $30 for each.

(a) the payoff matrix will be:

1\2 low effort high effort

low effort $5\$5 $10\$0

high effort $0\$10 $20\$20

(b) The equilibrium outcome is $5 for both with low efforts.

(c) There is a prisoners' dilemma, because the equilibrium outcome is not most profitable for both.

(a) the payoff matrix will be:

1\2 low effort high effort

low effort $5\$5 $10\$0

high effort $0\$10 $20\$20

(b) The equilibrium outcome is $5 for both with low efforts.

(c) There is a prisoners' dilemma, because the equilibrium outcome is not most profitable for both.

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