Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 17 - Part V - Oligopoly - Problems and Applications - Page 368: 6

Answer

a) Please see the image. b) The likely outcome is that both you and your classmate work. c) This change would negatively affect both me and my classmate. d) I would want to keep the first classmate.

Work Step by Step

a) The image shows the decision box. b) If the classmate works, then I am better off working (15 units of happiness) than shirking (10 units of happiness). If the classmate shirks, I am better off shirking (10 units of happiness) than working (5 units of happiness). If I work, the classmate is better off working (15 units of happiness) than shirking (10 units of happiness). If I shirk, the classmate is better off shirking (10 units of happiness) than working (5 units of happiness). Thus, neither my classmate nor I have a dominant strategy. c) If my classmate doesn't work at all during the year, my grade and happiness decrease. So, if this happens, I might consider shirking as well to increase my level of happiness (although my grade would be lowered as well). d) The second classmate receives higher levels of happiness, but there is still only a five unit difference (for me) between working and shirking. The second classmate might push all of the work to me and shirk. However, if I shirk, then the second classmate might be motivated to work more. Also, with the first classmate, we would receive more units of happiness working together.
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