Problem Set #10

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

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
ECON 1001 Problem Set 10 Essay
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
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.
Background image of page 2
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?
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
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.
Background image of page 4
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.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/18/2011 for the course ECON 1001 taught by Professor S.c during the Spring '10 term at HKU.

Page1 / 15

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

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online