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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

Two athletes of equal ability are competing for a prize of $10,000. Each is deciding whether to take a dangerous performance-enhancing drug. If one athlete takes the drug and the other docs not, the one who takes the drug wins the prize. If both or neither take the drug, they tie and split the prize. Taking the drug imposes health risks that are equivalent to a loss of X dollars.

a. Draw a 2 × 2 payoff matrix describing the decisions the athletes face.

b. For what X is taking the drug the Nash equilibrium?

c. Does making the drug safer (that is, lowering X) make the athletes better or worse off? Explain.

Subpart (a):

To determine
Payoff matrix.

Explanation

The payoff matrix of athletes regarding the decision is shown below. There are two decisions: “take drugs” and “don’t take drugs”.

Table 1 shows the decisions of athletes.

Table 1

Player One’s Decision

Take Drugs Don’t Take Drugs

Subpart (b):

To determine
Payoff matrix.

Subpart (c):

To determine
Payoff matrix.

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