2. Alexandria and Bob can each choose to Work or Not Work on a task. Each person's output is £80 for Not Work, and £160 for Work. The cost of effort is £0 for Not Work and £70 for Work. The total output is shared equally between the two. For example, if Alexandria puts in her effort but Bob does not, her net income is £120 - £70 = £50. Assume both workers are completely selfish. Based on this information, determine whether each of the following statements is true or false. (a) In the equilibrium outcome, they both end up with a net income of £80 each. (b) In the situation where both Alexandria and Bob put in effort, Alexandria does not have an incentive to deviate. (c) If Bob chooses to Not Work, he will definitely end up with a net income of £120. (d) The equilibrium outcome is the socially optimal outcome (outcome that maximises sum of their payoffs).

2. Alexandria and Bob can each choose to Work or Not Work on a task. Each person's output is £80 for Not Work, and £160 for Work. The cost of effort is £0 for Not Work and £70 for Work. The total output is shared equally between the two. For example, if Alexandria puts in her effort but Bob does not, her net income is £120 - £70 = £50. Assume both workers are completely selfish. Based on this information, determine whether each of the following statements is true or false. (a) In the equilibrium outcome, they both end up with a net income of £80 each. (b) In the situation where both Alexandria and Bob put in effort, Alexandria does not have an incentive to deviate. (c) If Bob chooses to Not Work, he will definitely end up with a net income of £120. (d) The equilibrium outcome is the socially optimal outcome (outcome that maximises sum of their payoffs).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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