she has a utility of UA(XA) = Alice (A) and Bob (B) want to share a pizza of size 1. If A gets a fraction xд of the pizza √xA. If B gets a fraction x³ of the pizza he has a utility of UB (XB) = XB. Suppose in a case of disagreement, A gets half the pizza and B gets no pizza, i.e. the disagreement point is d = 1/2 and d = 0. (a) Which factors of the bargaining problem are favorable for Alice, which factors are fa- vorable for Bob? (b) Calculate the Nash bargaining solution!

she has a utility of UA(XA) = Alice (A) and Bob (B) want to share a pizza of size 1. If A gets a fraction xд of the pizza √xA. If B gets a fraction x³ of the pizza he has a utility of UB (XB) = XB. Suppose in a case of disagreement, A gets half the pizza and B gets no pizza, i.e. the disagreement point is d = 1/2 and d = 0. (a) Which factors of the bargaining problem are favorable for Alice, which factors are fa- vorable for Bob? (b) Calculate the Nash bargaining solution!

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

1. Alice (A) and Bob (B) want to share a pizza of size 1. If A gets a fraction x of the pizza
she has a utility of u₁(xA) = √√xA. If B gets a fraction xß of the pizza he has a utility of
XB. Suppose in a case of disagreement, A gets half the pizza and B gets no pizza,
i.e. the disagreement point is d = 1/2 and dB = 0.
UB (XB)
=
(a) Which factors of the bargaining problem are favorable for Alice, which factors are fa-
vorable for Bob?
(b) Calculate the Nash bargaining solution!

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