4. Two people, A and B, are deciding whether to put effort into producing a public good or not. Each person, i, can either choose no effort (si = 0) or yes effort (s; 0). The total public good produced is G = max{SA, SB}. The cost = of doing no effort is 0. The cost of doing yes effort is 1.5. The payoff to a player is the total public goods provided (G) minus her personal costs. i. Given a choice by player B, SB, write down player A's utility from choosing no effort. ii. Given a choice by player B, SB, write down player A?s utility from choosing yes effort. iii. Comparing these two utilities, write down player A's best response. Noticing that player B's problem is identical to player A's, what is the unique Nash equilibrium of this game? v. In four sentences or less, explain why the Nash equilibrium represents a social dilemma and how this relates to the idea of positive externalities.

4. Two people, A and B, are deciding whether to put effort into producing a public good or not. Each person, i, can either choose no effort (si = 0) or yes effort (s; 0). The total public good produced is G = max{SA, SB}. The cost = of doing no effort is 0. The cost of doing yes effort is 1.5. The payoff to a player is the total public goods provided (G) minus her personal costs. i. Given a choice by player B, SB, write down player A's utility from choosing no effort. ii. Given a choice by player B, SB, write down player A?s utility from choosing yes effort. iii. Comparing these two utilities, write down player A's best response. Noticing that player B's problem is identical to player A's, what is the unique Nash equilibrium of this game? v. In four sentences or less, explain why the Nash equilibrium represents a social dilemma and how this relates to the idea of positive externalities.

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter11: Public Goods And Common Resources

Section: Chapter Questions

Problem 2PA

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