(b) Suppose there are two roommates John and Bill; each has a wealth of $1000. They are trying to decide whether or not to buy a TV that costs $800, when each of them values it at $600. They agree on the following procedure to decide whether or not to buy the TV. Each person will write on a piece of paper whether or not he thinks the TV should be purchased. If both say yes, they buy the TV and split the cost evenly. If both say no, they don't buy the TV. If one says yes, and the other says no, the person who says yes is obligated to buy the TV on his own. In this context, answer the following: (i) Is it Pareto efficient for the two roommates to buy the TV? and What is the dominant strategy of each player in this game? (ii)

(b) Suppose there are two roommates John and Bill; each has a wealth of $1000. They are trying to decide whether or not to buy a TV that costs $800, when each of them values it at $600. They agree on the following procedure to decide whether or not to buy the TV. Each person will write on a piece of paper whether or not he thinks the TV should be purchased. If both say yes, they buy the TV and split the cost evenly. If both say no, they don't buy the TV. If one says yes, and the other says no, the person who says yes is obligated to buy the TV on his own. In this context, answer the following: (i) Is it Pareto efficient for the two roommates to buy the TV? and What is the dominant strategy of each player in this game? (ii)

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Frontiers Of Microeconomics

Section: Chapter Questions

Problem 6PA

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