Answered: Gina and Bob are co-owners of a surf…

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Frontiers Of Microeconomics

Section: Chapter Questions

Problem 9PA

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5. Gina and Bob are co-owners of a surf shop. Both Gina and Bob prefer to skip work and go surfing, but if they both surf, the shop is closed. Each co-owner must choose between working and surfing. If they both work, they earn $600 each. If both surf, they earn $200 each (the value they place on surfing). If only one of the co-owners surfs while the other works, the worker gets $800 and the surfer gets $1000. a. Suppose that Gina and Bob make their decision simultaneously. Depict their interaction on a payoff table showing all outcomes (payouts) payouts. Identify the equilibrium outcome(s). b. Now suppose that Gina is an early riser, whereas Bob sleeps in. Therefore, Gina decides first whether to work or surf. By the time Bob makes his decision, Gina has already committed to one of the two options. Depict this interaction in a sequential game tree. Show all the payouts and identify the equilibrium outcome(s). c. Would it be in Bob’s best interest to get up sooner, so that he can decide first? Explain.

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