Player 1 and Player 2 have formed a partnership (e.g., a law firm). Suppose both playerssimultaneously invest some effort and split the joint return equally. Let x and y denote theamounts of effort that Player 1 and Player 2, respectively, invest. This will result in a disutilityof x²/2 for Player 1 and a disutility of y2/2 for player 2. However, it will result in a joint return of(x+y) which the players split evenly.a) Left to their own devices, what effort levels will the players' choose? Show calculations.b) What is the efficient effort levels? Show calculations.c) Why isn't the efficient effort levels achieved when the player's are left to their own devices?How could the partnership attempt to address this issue?d) Relating it to a law firm, what would you expect to happen to effort levels as the number ofpartners at a law firm increases? What are possible explanations as to why the average sizeof a law firm has increased significantly in recent years?

Player 1 dis-utility : x2/2Where , x : effort of player 1 Player 2 dis-utility : y2/2Where , y :…

Player 1 and Player 2 have formed a partnership (e.g., a law firm). Suppose both players simultaneously invest some effort and split the joint return equally. Let x and y denote the amounts of effort that Player 1 and Player 2, respectively, invest. This will result in a disutility of x²/2 for Player 1 and a disutility of y/2 for player 2. However, it will result in a joint return of (x+y) which the players split evenly. a) Left to their own devices, what effort levels will the players' choose? Show calculations.

Player 1 and Player 2 have formed a partnership (e.g., a law firm). Suppose both players simultaneously invest some effort and split the joint return equally. Let x and y denote the amounts of effort that Player 1 and Player 2, respectively, invest. This will result in a disutility of x²/2 for Player 1 and a disutility of y/2 for player 2. However, it will result in a joint return of (x+y) which the players split evenly. a) Left to their own devices, what effort levels will the players' choose? Show calculations.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.3P

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