An apartment building needs a new elevator, which costs $10,000. 10 residents need to decide independently whether or not to chip in. If no resident is willing to bear the cost, the elevator will not be installed and each resident will receive zero payoff. However, if n > 0 residents are willing to chip in, the elevator will be installed. If the elevator is installed, each resident will receive a benefit equal to $2,000 regardless of whether they have chosen to chip in or not. However, a resident who has chosen to chip in will also bear their share of the For example, if 5 residents choose to chip in, they will receive a net $10,000 installation cost n payoff equal to $2,000 $10,000 5 or $0, while other residents will each receive payoff $2,000. (1) Is every resident chipping in a Nash equilibrium of the game? Explain. (2) Is no resident chipping in a Nash equilibrium of the game? Explain. (3) Are there any other Nash equilibria? If there are, specify such a Nash equilibrium and verify that it is indeed an equilibrium. If no other Nash equilibria exits, explain why the other action profiles are not Nash equilibria. .

An apartment building needs a new elevator, which costs $10,000. 10 residents need to decide independently whether or not to chip in. If no resident is willing to bear the cost, the elevator will not be installed and each resident will receive zero payoff. However, if n > 0 residents are willing to chip in, the elevator will be installed. If the elevator is installed, each resident will receive a benefit equal to $2,000 regardless of whether they have chosen to chip in or not. However, a resident who has chosen to chip in will also bear their share of the For example, if 5 residents choose to chip in, they will receive a net $10,000 installation cost n payoff equal to $2,000 $10,000 5 or $0, while other residents will each receive payoff $2,000. (1) Is every resident chipping in a Nash equilibrium of the game? Explain. (2) Is no resident chipping in a Nash equilibrium of the game? Explain. (3) Are there any other Nash equilibria? If there are, specify such a Nash equilibrium and verify that it is indeed an equilibrium. If no other Nash equilibria exits, explain why the other action profiles are not Nash equilibria. .

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 17.5IP

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