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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

You and a classmate are assigned a project on which you will receive one combined grade. (You each want to receive a good grade, but you also want to avoid hard work. In particular, here is the situation:

• If both of you work hard, you both get an A, which gives each of you 40 units of happiness.

• If only one of you works hard, you both get a B, which gives each of you 30 units of happiness.

• If neither of you works hard, you both get a D, which gives each of you 10 units of happiness.

• Working hard costs 25 units of happiness.

a. Fill in the payoffs in the following decision box:

images

b. What is the likely outcome? Explain your answer.

c. If you get this classmate as your partner on a series of projects throughout the year, rather than only once, how might that change the outcome you predicted in part (b)?

d. Another classmate cares more about good grades: She gets 50 units of happiness for a B and 80 units of happiness for an A. If this classmate were your partner (but your preferences were unchanged), how would your answers to parts (a) and (b) change? Which of the two classmates would you prefer as a partner? Would she also want you as a partner?

Subpart (a):

To determine
Payoff matrix of classmates.

Explanation

Table 1 shows the payoff matrix.

Table 1

Your Decision

Work Shirk

Classmate’s

Decision

Work

Subpart (b):

To determine
Payoff matrix of classmates.

Subpart (c):

To determine
Payoff matrix of classmates.

Subpart (d):

To determine
Payoff matrix of classmates.

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