Problem Set #10

# Problem Set #10 - ECON 1001 Problem Set 10 Essay Background...

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ECON 1001 Problem Set 10 Essay

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Background Story: Jill and Jack both have 2 pails that can be used to carry water down from a hill. Each person can only carry 1 pail in one trip down the hill. Each pail of water can be sold for \$5. Both Jill and Jack is willing to pay \$2 each to avoid carrying 1 pail, and an additional \$3 to avoid carrying the 2nd pail down the hill.
Question 1 Assuming that Jill and Jack make independent decisions… Given market prices, how many pails of water will each child fetch from the top of the hill?

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The market price of each pail is \$5. The “profit” of the first unit is \$5-\$2=\$3 (for both Jill and Jack). The “profit” of the second unit is \$5-\$3=\$2 (for both children) Therefore, they both would carry 2 pails of water each.
Question 2 Now the two children are to share equally their revenues from selling the water. (They cooperate) Given they both are self-interested, construct the payoff matrix for the decisions regarding the number of pails each should carry.

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Problem Set #10 - ECON 1001 Problem Set 10 Essay Background...

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