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!
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
1b
Transcribed Image Text: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!
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education