this is not graded paper, I have made these practice questions myself. Dont reject it. Three friends i = 1, 2, 3 get together for a few drinks and decide to share the total billequally. Friend i's preferences are represented by the utility functionu¡ (x₁, y₁) = 2√√√x¡ — Yi ·where x; is the number of drinks that i consumes and y; is the amount of money that ipays. Each drink costs $1.(a) Describe the strategic game generated by this situation.(b) How many drinks will these friends have at the Nash equilibrium of the gamegenerated by this situation? Is the Nash equilibrium a dominant-strategyequilibrium? Explain.(c) Is this Nash equilibrium efficient? Explain.

Answered: Three friends i = 1, 2, 3 get together…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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this is not graded paper, I have made these practice questions myself. Dont reject it.

Three friends i = 1, 2, 3 get together for a few drinks and decide to share the total bill
equally. Friend i's preferences are represented by the utility function
u¡ (x₁, y₁) = 2√√√x¡ — Yi ·
where x; is the number of drinks that i consumes and y; is the amount of money that i
pays. Each drink costs $1.
(a) Describe the strategic game generated by this situation.
(b) How many drinks will these friends have at the Nash equilibrium of the game
generated by this situation? Is the Nash equilibrium a dominant-strategy
equilibrium? Explain.
(c) Is this Nash equilibrium efficient? Explain.

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Nash equilibrium refers to that strategy in a game which provides best possible payoffs from a game considering other player reactions and there is no incentive left for players to deviate from that strategy .

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