1 Individuals 1 and 2 are working together on a project. When 1 exerts effort ei and 2exerts effort e2, the outcome generated is X = 40e1 + 80e2. The utilityfunctions are such that individual 1 gets U1 = aX- (e1)*, and individual 2|3DU2 = (1– a)X - (e2)*.gets%DThe value a E 0, 1 is the share of X that is given to individual 1.They can either set efforts cooperatively maximizing the total surplus defined asU1 + U2.Alternatively they choose their effort non-cooperatively whereby each individualmaximizes his/her own utility.They cannot rely on any contract or threats.QUESTIONS:1-What is the value of the total surplus that is reached when 1 and 2 decide onefforts cooperatively?Enter your answer in blank #1. Do not use any comma.2-What is the value of a that maximizes the total surplus when efforts are chosen3-What is highest value of the total surplus that is reached when 1 and 2 set theirefforts non-cooperatively.Enter your answer in blank #3. Do not use any comma.Blank # 1Blank # 2Blank # 3

When the efforts are decided cooperatively both the players jointly optimize the total surplus with…

Individuals 1 and 2 are working together on a project. When 1 exerts effort e1 and 2 exerts effort e2, the outcome generated is X = 40e1 + 80e2. The utility %3D functions are such that individual 1 gets U1 = aX- (e1)", and individual 2 gets U2 = (1 – a)X – %3D - }(e2)*. |3D The value a E 0, 1 is the share of X that is given to individual 1. They can either set efforts cooperatively maximizing the total surplus defined as

Individuals 1 and 2 are working together on a project. When 1 exerts effort e1 and 2 exerts effort e2, the outcome generated is X = 40e1 + 80e2. The utility %3D functions are such that individual 1 gets U1 = aX- (e1)", and individual 2 gets U2 = (1 – a)X – %3D - }(e2)*. |3D The value a E 0, 1 is the share of X that is given to individual 1. They can either set efforts cooperatively maximizing the total surplus defined as

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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