Balthazar and Artemis are cousins who grow stick cactus in adjacent plots. Each can choose to work somewhat hard and expend $200 worth of effort, or can work extremely hard and expend $300 worth of effort
If either works somewhat hard, he can produce stick cactus that sell for a total of $650. If either works extremely hard, he can produce stick cactus which sell for a total of $800. Both Balthazar and Artemis are equally good at growing stick cactus. a. What is the dominant strategy for Balthazar and for Artemis? b. If both play their dominant strategies, what is the net payoff for each cousin? c. Is there a Nash equilibrium, and if so, what is it? Now assume the cousins are forced by government to combine their plots and share what they make. d. What is the dominant strategy for Balthazar and for Artemis? e. If both play their dominant strategies, what is the net payoff for each cousin? f. Is there a Nash equilibrium, and if so, what is it? g. How did this change in property rights affect each cousin's incentive to work, and what happens to the economic pie?
a. The dominant strategy for both cousins is to work extremely hard.
b. Each cousin has a net payoff of ($800 - $300 ) = $500.
c. The Nash equilibrium occurs when each cousin works extremely hard.
d. The dominant strategy for both cousins is to work somewhat hard.
e. Each cousin has a net payoff of ($650 - $200 ) = $450.
f. The Nash equilibrium occurs when each cousin works somewhat hard.
g. Each cousin has less incentive to work extremely hard and the economic pie shrinks.
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